The European Union announced plans last Wednesday  to introduce additional tariffs of up to 38 percent on imports of electric vehicles (EVs) from China. This announcement came as part of the provisional findings of an investigation launched by the European Commission in September 2023, which concluded that Chinese EV production benefits from “unfair subsidisation, which is causing a threat of economic injury to EU BEV producers.”

What are the preliminary tariffs announced by the European Commission?

The European Commission’s preliminary tariffs range from 17 per cent to 38 per cent and would apply on top of the European Union’s standard 10 per cent car tariffs. The tariffs cover imports of new electric vehicles “propelled …. solely by one or more electric engines” coming from China. They do not cover hybrids, nor do they cover individual EV inputs such as batteries. Tariff rates would vary depending on the automaker and were purportedly calculated according to estimates of state subsidisation for BYD, Geely, and SAIC, which were included in the commission’s sample of Chinese EV manufacturers. Automakers that cooperated in the investigation but were not sampled would be subject to a weighted average duty of 21 percent. Other EV producers which did not cooperate would be subject to a residual duty of 38.1 percent. Notably, these tariffs apply to not only Chinese automakers—but also to Western firms that make EVs in China for the European Union, such as Tesla, BMW, and Volkswagen. The investigation’s report did include a provision that permits companies not included in the sample to request an “individually calculated duty rate” at the definitive stage, potentially allowing Western automakers to receive lower rates.

Why did the European Commission announce these tariff increases?

The European Commission stated that the purpose of the tariffs is to “remove the substantial unfair competitive advantage” of Chinese EV supply chains “due to the existence of unfair subsidy schemes in China.” As with U.S. law and consistent with World Trade Organisation rules, EU trade anti-subsidy measures must establish that “imports benefit from countervailable subsidies” and that the “EU industry suffers material injury.” The commission’s announcement suggests that it identified sufficient evidence on both these accounts, although it did not disclose any specific findings. The commission reportedly sent letters to BYD, SAIC, and Geely in April saying that they had not provided enough information related to the investigation, suggesting that the commission would be forced to rely on the concept of “facts available”—which typically allows for greater leeway to impose higher duties. In China, Beijing and local governments have historically provided a wide range of support for domestic EV manufacturing, including purchase subsidies, tax rebates, and below-market loans and equity. For instance, BYD received 2.1 billion euro in direct government subsidies in 2022. Although Beijing has recently dialed back purchase subsidies, softening domestic demand combined with high manufacturing capacity have encouraged domestic automakers to offload excess inventory to foreign markets—particularly Europe, where Chinese EVs often sell for at least 20 percent more than the same models can fetch in China. EU imports of Chinese EVs surged from $1.6 billion in 2020 to $11.5 billion in 2023. Chinese and Chinese-owned EV brands grew from 1 percent of the EU market in 2019 to 8 percent in 2022, with the European Commission warning that figure could reach 15 percent by 2025. While these figures do not yet indicate Chinese market dominance, rapid Chinese share growth and long-term ambitions—such as BYD’s commitment to reach 5 per cent of Europe’s EV market—have created alarm in the European Union.

Given that Chinese EVs have already entered the European Union in large numbers and many European automakers rely on Chinese manufacturing, it is unlikely that the new tariffs are designed to fully block off these imports. The commission explicitly indicated as much in its stated aim “not to close the EU markets to [Chinese EV] imports.” That said, the commission no doubt sees a surge of Chinese EVs as a threat to its burgeoning EV industry—which is already being squeezed on margins by inflation and high interest rates. Many EU observers see parallels between the surging EV imports and the rise of Chinese solar panel imports in the 2000s and 2010s, which critics credit with the erosion of Europe’s solar manufacturing base. The commission wants to avoid a similar fate for European EV manufacturing.

How are the European Union’s new tariffs different from recently announced U.S. tariffs?

Although it comes just weeks after the Biden administration’s tariff hike on Chinese EVs, the European Commission’s decision is notably different. While the former is arguably largely symbolic—given the small number of Chinese EVs currently being imported into the United States—and overtly protectionist, the latter is an attempt at a more narrowly tailored trade measure that balances (1) support for a nascent EV industry competing with a heavily subsidised competitor and (2) ensuring continued trade with Chinese manufacturing supply chains and China’s consumer automotive markets, which are both critical to the European Union’s auto industry. This distinction was apparent in the rhetoric used to describe the measures. The Biden administration adopted a directly protectionist tone, while the European Commission explicitly disavowed protectionist intentions and stated that the aim of the tariffs was to “ensure that EU and Chinese industries compete on a level playing field.”

Pursuant to these divergent policy aims, the EU tariffs differ from the U.S. tariff hikes in both their magnitude and scope. The Biden administration quadrupled existing rates to reach 100 percent tariffs for Chinese EVs—well above the upper bounds of the European Union’s measures. The U.S. tariff hikes apply equally across automakers manufacturing EVs in China, while the commission plans to apply more tailored rates based on subsidy estimates and levels of cooperation with the anti-subsidy investigation. The Biden administration’s measures also include EV components—namely, lithium-ion batteries—while the EU tariffs only apply to finished EVs. These differences also reflect the statutory authorities through which the tariffs were enacted. The United States used its Section 301 authority, which permits a broad range of actions in response to foreign trade practices deemed unfair. The European Union relied on its countervailing duty authority, which allows more targeted responses to specific subsidy rates. While they are clearly distinct from the U.S. tariff hikes, however, whether the European Union’s new measures can successfully strike a balance between protecting domestic industry and minimising disruption to its trade relationship with China remains to be seen. Much of this will depend on how China and its automotive sector choose to respond as well as whether the measures can enable greater pricing parity between Chinese and European EV brands.

What implications might the preliminary tariffs have for the European Union’s EV markets and its transition to clean energy?

The preliminary EU tariffs are unlikely to significantly reduce the growing tide of Chinese EVs entering the European market. A 2023 Rhodium Group study estimated that EU tariffs would need to reach the 45 percent to 55 percent range to make the European market commercially unappealing for Chinese manufacturers based on existing margins. While the proposed combined 48 percent duties on SAIC (and automakers “which did not cooperate in the investigation”) fall into this range, the rates for Geely and BYD remain below it. Even with the tariffs, BYD would reportedly still generate higher EV profits in the European Union than it does in China and could even pass along tariffs to consumers and remain lower priced than competing European models. China’s EV industry expressed low levels of concern in its initial assessments of the tariffs’ effects. Cui Donghshu, secretary general of the China Passenger Car Association, said that the measures “won’t have much of an impact on the majority of Chinese firms,” and Chinese producer NIO reaffirmed its “unwavering” commitment to the European EV market. Many Chinese automakers have also expanded their European manufacturing, a trend that is expected to accelerate in response to the tariffs. There is some evidence that European and U.S. automakers with operations in China could face negative impacts. The previously mentioned Rhodium Group study, for instance, found that duties in the 15 percent to 30 percent range could have a greater impact on the ability of Western automakers like BMW and Tesla—which produce EVs on slimmer margins than Chinese firms—to export from their Chinese manufacturing facilities compared to China-based automakers. Volkswagen, BMW, and Tesla have been among the most outspoken critics of the commission’s anti-subsidy probe and preliminary tariffs. Tesla has requested an individually calculated rate based on an evaluation of its subsidy rate, and it is possible that affected European automakers will do the same—which would likely lead to more lenient rates for Western automakers. The commission reiterated that the tariff hikes do not undermine its goal of transitioning to clean energy. However, tariffs could drive elevated EV prices in European markets—and therefore depress European demand for EVs. Tesla, for instance, has already announced price hikes on its Model 3 vehicles. The commission is also investigating Chinese clean technology such as solar and wind, indicating a broader reluctance to allow widespread low-cost Chinese green exports to enter the European Union as it attempts to build up domestic green industries, even if they would boost demand. The United States has also faced scrutiny along this front, with the European Commission expressing concerns about the adverse impacts of the 2022 Inflation Reduction Act.

How might China respond to these new preliminary tariffs?

China’s response to the preliminary tariffs could take many forms—most notably, retaliatory tariffs on European exports of cars and other goods. Beijing has mentioned the possibility of retaliation in areas like food and agriculture and aviation, as well as the possibility of a 25 per cent tariff on imports of “cars equipped with large displacement engines.” German automakers cited the risk of retaliatory tariffs as a key risk of the commission’s anti-subsidy probe, given that China represents the leading global market for passenger vehicle sales. China already announced an anti-dumping investigation into European liquor in January of 2024, which is expected to affect imports of French cognac. Chinese officials and automakers technically have opportunities to respond to these findings and encourage the commission to modify the countervailing duties before its final determination. Notably, Vice Premier Ding Xuexiang announced plans to travel to Brussels to “deepen” the EU-China “green partnership.” That said, Beijing has consistently rejected claims that its support for domestic industry constitutes unfair subsidisation in similar cases, and China’s Ministry of Commerce has called the tariff announcement a “nakedly protectionist act.” Additionally, Chinese firms have shown little willingness to cooperate with the European Commission thus far. Therefore, retaliatory measures seem more likely than successful further negotiations at this stage. Trade action would likely be limited, as China may be wary of a broader trade war due to potential negative impacts on domestic industry and fears of encouraging increased coordinated transatlantic economic action against China.

What does the European Commission’s decision say about its current trade policy objectives?

Like the United States, the European Union is pursuing intertwined—and often competing—objectives of building up and protecting domestic industries, reducing Chinese control of supply chains, and transitioning to green technologies. However, the deep interdependence of the EU and Chinese auto industries makes the European Union less inclined to significantly reduce reliance on China in the sector. While this more moderate approach leaves European EV manufacturers exposed to Chinese competition, it allows many of the same manufacturers to use China for cheap manufacturing. The European Union’s trade policy thus theoretically harms the clean energy transition less than more restrictive trade measures by allowing access to (and competition with) low-cost Chinese technologies. Whether the European Union can achieve this without undermining its own EV industry—either via a trade war or by failing to stop the flood of low-cost imports from BYD and others—remains to be seen.
*Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues.

Countries in the Sahel (comprising Burkina Faso, Chad, Mali, Mauritania, and Niger), along with neighboring Central African Republic (CAR) are facing a medley of development challenges. Escalating insecurity, political instability including military takeovers, climate change, and overlapping economic shocks are making it even harder to achieve sustainable and inclusive development in one of the poorest parts of the world. In 2022, conflict-related fatalities in these countries increased by over 40 percent. The deterioration of the security situation over the past decade has caused a humanitarian crisis, with more than 3 million people fleeing violence in Burkina Faso, Mali, and Niger, according to UNHCR. More frequent extreme weather events in the Sahel—including historic floods and drought—depress productivity in agriculture, resulting in the loss of income and assets, while exacerbating food insecurity and reinforcing a vicious circle of fragility and conflict. In an interview with Country Focus, the IMF African Department’s Abebe Selassie and Vitaliy Kramarenko discuss the economic ramifications of these challenges and how these countries can best address priority needs.

What do some of these challenges mean for Sahel and CAR economies?

Governments in these countries (except for Mauritania) are facing tighter financing constraints, exacerbated by escalating security costs and rising debt. Security spending has imposed an increasing and unavoidable burden on budgets, reaching 3.9 percent of GDP in 2022 and absorbing 25 percent of fiscal revenues before grants, on average. Increased security spending is a necessity to ensure stability, but it is crowding out other priority spending, including the provision of basic public services. For the countries in the Sahel region, public debt as a share of GDP has been increasing steadily since 2011 and is projected to average close to 51 percent in 2023. With financial conditions likely to remain tight in the near term, there is limited scope for governments to borrow more. To meet pressing needs, Sahel countries must therefore focus on grants, highly concessional financing, domestic revenue mobilization, and private sector development efforts.

What is the economic outlook for the region, and how can the Sahel catch up with other economies?

Economic growth in the region is projected to stabilise at about 4.7 percent over the medium term. But this is not enough to reverse the increasing income divergence between the Sahel region and advanced economies. The divergence could be further exacerbated if terms of trade deteriorate relative to the baseline scenario. IMF estimates suggest that additional investments of about $28.3 billion over 2023-26 would be required to fully reignite the development catch-up process in the region.

What kind of additional support is needed to ensure a path to sustainable development in the region?

Addressing the multiple challenges faced by the five Sahel countries and CAR will require stepped up efforts from both governments and development partners. Bold reforms, supported by highly concessional financing, are needed to revive income convergence trends and address the driving forces of rising insecurity.

Additional donor support, preferably in the form of grants, will be an essential part of the solution. Donor support to these countries has declined by close to 20 percent over the last decade to reach about 4 percent of GDP. Strikingly, less than half a percent of GDP was provided in the form of budget support grants in 2022, which are crucial to address financing priorities in a flexible manner. Political instability and fragile transitions to civilian rule in Burkina Faso, Mali, and Niger are making it more difficult to raise the concessional financing needed to meet spending priorities. Concerns related to the transparency of public spending is also an important issue in CAR. Prolonged reductions of budget support to the region present significant risks to essential functions of the state and will worsen already dire social and humanitarian conditions. Hence, the international community needs to find ways to engage Sahel countries on financing key social programs even amidst difficult transitions to help lay the foundation for peace and sustainable development in the region and beyond.

What else can country authorities do?

Country authorities can also play their part to facilitate greater donor financing. Measures that increase budget transparency and accountability and further enhance governance and anti-corruption frameworks will help, including efforts to strengthen security expenditure management and internal controls. While more financial support is critically important in the near term, government efforts to boost domestic revenue mobilisation are also essential to finance spending needs in a sustainable manner. Countries should also improve the provision of public services in fragile zones and implement policies to unlock access to economic opportunities for young people. Given the preponderance of agricultural livelihoods and that climate change is likely to remain an important driver of conflict, these efforts must go hand in hand with adopting policies to foster resilience and climate-smart investments, including in the agricultural sector.

How has the IMF been helping Sahel countries improve their economies?

Currently, five out of the six countries have an IMF-supported financing arrangement helping them strengthen macroeconomic frameworks and implement reforms. Moreover, Mauritania has requested access to the Resilience and Sustainability Facility (RSF) and an IMF program to introduce macro-critical climate reforms is under preparation. In addition, the Fund continues to provide extensive capacity development activities for all the economies in the region. More broadly, the IMF’s strategy for engaging with fragile and conflict affected states focuses on delivering more robust support, tailored to the characteristics of these countries. This includes rolling out Country Engagement Strategies to better assess the country specific manifestations of fragility and conflict, deploying more staff on the ground, scaling-up capacity development, and strengthening partnerships with humanitarian, development, and peace actors. The Fund is committed to helping the economies in the Sahel resume their development path even in a context of significant stress. 

Director, Fiscal Affairs Department Ruud De Mooij, Deputy Director, Fiscal Affairs Department  Era Dabla‑Norris, Assistant Director, Fiscal Affairs Department interacted with the media in Marrakech on fiscal monitor 

Excerpts 

Introductory remarks

For all countries, balancing public finances has become increasingly difficult. Difficulties are created by growing demands for public spending, rising interest rates, high debts and deficits, and political resistance to taxes. But there are sharp differences across countries. On the one extreme, some countries lack the cash to pay for urgent spending and lack access to credit. On the other extreme, there are countries that do not face any immediate financing constraints but where unchanged policies would lead to ever‑rising debt. Moreover, many countries need tighter fiscal policy, not just to rebuild fiscal buffers to respond to future shocks but also to help central banks bring inflation down to target.

Worldwide, debt levels are generally elevated, and borrowing costs are climbing. Global public debt is expected to increase to more than 93 percent of GDP in 2023 and to rise onwards, mainly due to major economies, like the United States and China. The increase is projected to be about one percent of global GDP annually over the medium term. Public debt is higher and growing faster than pre-pandemic projections. Excluding these two economies, the ratio would decrease by approximately half percent annually. Slower economic growth, higher interest rates, and pressures on primary deficits also help explain why global public debt would go above 100 percent of GDP by the end of the decade.

Against this backdrop, the Fiscal Monitor dives into the fiscal implications of the green transition. Current national objectives and policies will fail to deliver net zero, with catastrophic consequences. In other words, large ambition gaps, the difference between countries’ nationally defined contributions and what’s required for Paris Agreement goals, and policy gaps (the difference between national targets and outcomes achievable under current policies) remain. The option of scaling up the present policy mix that relies on subsidies and public investment to attain net zero is projected to increase public debt by 45 to 50 percentage points of GDP for both advanced and emerging economies by 2050, compared with business as usual. The Fiscal Monitor shows that the combination of policy instruments can attenuate this most unpleasant trade‑off. Carbon pricing is a central piece but must be supplemented with measures to address other market failures and distributional concerns. Fiscal support is needed to help vulnerable households, workers, communities, and businesses to adapt. The Climate Crossroads report offers policy options to limit the accumulation of additional debt to 10 to 15 percent of GDP by 2050. This brings the scale of the problem down to a size that can be addressed by other fiscal measures.

Often, countries with limited fiscal capacity, low tax revenues, and restricted access to market financing face substantial adaptation costs. They should prioritize and increase the quality of public spending, for example, by eliminating fuel subsidies. They should also strengthen tax capacity by improving institutions and broadening the tax base. The private sector is key to a successful green transition, so authorities should put in place a policy framework, favouring private investment and private financing.

In 2021 and 2022, the IMF backed tax capacity of treasury market development in over 150 member states. Chapter 3 of the Global Financial Stability Report covers climate finance in greater detail. As COP28 nears, a global cooperative approach, led by major players — including China, India, the United States, the African Union, and the European Union — would make a significant difference. A central element would be a carbon price floor or equivalent measures. Other important elements are technology and financial transfers and/or revenue sharing. The latter could bridge financial divergences across countries and contribute to achieving the United Nations Sustainable Development Goals, starting with the elimination of poverty and hunger.

The IMF has a vital role at the center of the international monetary system. It supports sound public finances and financial stability as part of the global financial safety net. Urgent member support is needed to increase quota resources and secure funding for the concessional Poverty Reduction and Growth Trust and the Resilience and Sustainability Trust. The three‑way policy trade‑off described in the Fiscal Monitor is not limited to climate. Countries everywhere are faced with multiple spending pressures. Under such conditions, political red lines limited taxation at an insufficient level translate directly into larger deficits that push debt to ever‑rising heights. Something must give. Policy ambitions must be scaled down or political red lines on taxation moved if public debt sustainability and financial stability are to prevail. The Fiscal Monitor shows that a smart policy mix is the way out of this delimma.

In African, we all know about the high unemployment rates on the continent. We also know about the low growth on the continent. We know about the high poverty levels. So, in that environment, how do you increase taxes? And how do you use taxes as a tool to try to address the issues that you are talking about?

Thank you very much for that question because the revenue mobilisation agenda for Africa is really critical going forward. There are so many needs for spending in terms of development needs, investments in infrastructure, in education, in healthcare. Countries need to invest in adaptation, in mitigation. So, there are huge needs for revenue mobilisation because many countries are also facing high debt levels.

How much can countries generate in terms of revenue? 

We released a study two weeks ago that looks into that. So, it explores: What is the revenue potential, given the circumstances in countries? So how much can they maximally raise? And what the study finds is that by reform of policies, reform of administrations, they can generate 7 per cent more of GDP as their potential. And in addition to that, if they would also be able to change their institutions — so the quality of the state’s capacity, if low‑income countries could move to the average level of emerging markets, they could generate another 2 percent. So, we arrive at a revenue potential of all these reforms that could generate 9 percent of GDP in revenue. And, of course, the big question is: How can you do that? So, what are the measures that can contribute to that? And we find that many countries have a huge number of tax concessions. They have an income tax. They have a VAT, but they provide so many tax concessions, exemptions for certain industries, certain commodities. And the revenue foregone from these measures is between 2 and 5 per cent of GDP, so there’s a lot of potential there.

There’s a lot of tax evasion. There are studies on the VAT of tax evasion which relate to failure to register, failure to remit tax, underreporting of income, false claims for refunds. All these issues together add up to 2 to 4 percent of GDP. And this is a matter of good enforcement. Good revenue administration can go a long way in mobilising more revenue. And as Era just said, there are opportunities for, for instance, new taxes, like a carbon tax. A carbon tax is relatively easy to administer, especially interesting for countries that have limited capacity, administrative capacity to generate revenue, because you levy the tax from just a number — a small number of sources, usually large companies. So, there are many opportunities. There are many more, but these are big ones. And the question is often: How do you get it done? How do you manage politically to increase taxes? I think what is very important is to link it to the development agenda. You don’t raise taxes just for the sake of raising taxes; you do it for supporting the development agenda. And there are many examples also in Africa that have managed to increase tax revenue, over a relatively short period of time, quite significantly, by multiple percentages of GDP. And I think we can learn from these examples. On Friday, there will be the fiscal forum, where we have a number of countries explaining their experience in mobilising more revenue.

How would you convince a reluctant government to adopt a carbon taxation, considering the political price it can represent? And are there specific parameters to ensure its effectiveness? 

Our latest Fiscal Monitor, Climate Crossroads, highlights the importance of carbon pricing as an important part of the climate mitigation toolkit. And this is for two reasons. Well, first, carbon taxation, like other measures of carbon pricing, relies on the polluter‑pays principle. In other words, those who pollute more pay more. So as such, it can be an effective instrument to encourage energy preservation, to incentivise a shift toward clean energy, to catalyse private adoption, innovation of clean technologies. Second, carbon pricing — carbon taxation, in particular, can be particularly easy to administer because many countries already have fuel taxes; so, this is essentially a top‑up.

That said, carbon taxes, like any other taxes, can be unpopular. And this is because it raises energy prices. But an important thing that needs to be borne in mind is that carbon taxation also raises revenues. And these revenues then, in turn, can be used to compensate vulnerable households, vulnerable individuals from the higher energy prices. In fact, our own research at the IMF finds that when you survey people and ask them about their perceptions about carbon taxation, when they are made aware that the revenues can be recycled to protect them from the higher energy prices and to alleviate the distributional concerns, that actually leads to greater acceptability, political acceptability of carbon taxation.

That said, carbon taxation alone is not enough because it may not necessarily be the optimal policy in hard‑to‑abate sectors, such as buildings, where other types of incentives may be required. And it’s also important to note that a range of complementary policies, sectoral mitigation policies — such as fee bates, public subsidies for incentivising private investment — may be needed. So, the Fiscal Monitor emphasises a mix of policies that can be used to manage the climate transition. 

The IMF suggested to address the debt increase resulting from public climate investments, nations should take carbon pricing to generate revenue and stimulate the increased private investments. So, my question is, what alternative measures should be taken in countries where implementing carbon pricing is not feasible? 

Fiscal Monitor shows that carbon pricing can be very effective in addressing climate change, for all the reasons that I have just mentioned. If countries, instead, were to rely on just public subsidies or green subsidies and public investment to address climate change and to achieve their net zero targets, this can be fiscally very costly. And our analysis shows that this could lead potentially to higher debt — could increase debt by 45 to 50 percent of GDP. And not all countries can afford such a route. That said, it is possible to put in place carbon price equivalent policies, such as regulations, feebates, tradable performance standards, and a mixture of public subsidies and public investment, in order to achieve net zero goals. But I should — but I should emphasise that it will be costly if we don’t have carbon pricing as part of the policy mix.

Mostly, in advanced economies, post‑pandemic recovery and the energy shock and now the climate change have required and are requiring significant fiscal easing. Is now the time to go back to fiscal austerity? What’s your assessment on Italian public debt? It is very high. 

Thanks for your two questions. I would frame the issue of return as a return to fiscal rules, a return to a situation where the normal rules for the conduct of fiscal policy apply, in a context where increasing demands for public support and high inflation make a strong case for fiscal tightening, for most countries. In the case of the euro area, in the case of the European Union, we are very much in favor of a return to rules. We are in favour of the return to fiscal governance procedures in the European Union. And we believe that the commission has put on a proposal that includes very important and constructive elements, like a country‑specific approach based on a risk‑based Debt Sustainability Analysis and also the emphasis on a public spending path as the operational target. Those aspects were elements that we put forward in a paper, joint by the Fiscal Affairs Department and the European Department of the Fund, about a year ago. And we’re welcoming that these elements were taken by the European Commission proposal. We hope that the member states of the European Union will be able to reach a consensus soon because I think that that would very much contribute to stability in the European Union.

When it comes to debt in Italy, in the projections that we have just put out, we have a profile where the public debt‑to‑GDP ratio does decline; but it declines very slowly; and it stays well above the pre-pandemic level of debt. We are of the view that in order to bring the public debt‑to‑GDP ratio down in Italy, there are two elements that are crucial. One, structural reforms that will increase potential growth in Italy. That’s extremely important to dilute public debt gradually over time; but also additional ambition in terms of a fiscal adjustment in the context of a strengthening of the goals that the Italian government has in this area.

I was just wondering if you could, first, just give us a word about the conflict in the Middle East. There’s a lot of attention on this this week. It’s already pushing up energy prices for countries. It’s another shock on top of shock after shock after shock. What sort of fiscal impact might this have? And what are the things you are going to look out for in that? Also, if you could give us a word on kind of the convergence of China and the U.S. in terms of their debt‑to‑GDP ratios in your Fiscal Monitor and your Global Debt Database. They’re kind of converging at the same time. So just very briefly, on the fiscal challenges by the two largest economies in the world. Thanks.

On the situation in the Middle East, you may recall, David, that the chief economist at the IMF, Pierre‑Olivier Gourinchas, commented on possible implications associated with market developments and, in particular, developments in oil markets; but at this point in time, as he has also emphasised, it’s premature to make conjectures about that. We don’t know enough. And, of course, the conflict has not been reflected in the projections, in the numbers that we can deploy at this particular point in time. We are following developments very closely. They are developments of global relevance. When it comes to China and the U.S., the two largest economies in the world are also dominant in terms of global public debt developments. I emphasized in my introductory remarks. So global public debt is projected to increase by about 1 percentage point per year until the end of our projection period, in 2028. And if one would continue at this pace until the end of the decade, one would have global public debt above 100 percent of GDP. Without the U.S. and China, the trend would actually be declining by about half a percentage point per year. So, the two largest economies are really very important.

Something that the U.S. and China have also in common, that I want to emphasize, is ample policy space. Both in the case of the U.S. and in the case of China, the authorities have multiple policy options. They have multiple policy levers that they can use, ample policy space. It’s very important to bear that in mind. But the challenges that both economies face are quite substantial. In both cases, we have very high deficits in our projections. In both cases, we have rapidly growing debt. And in the case of the United States, if one uses, for example, the Congressional Budget Office’s projection, one has the public debt increasing until 2050 to very high levels; and the path of debt is pushed by high deficits, in part, determined by rising interest payments on the debt. So, the U.S. has ample policy instruments to control these developments and will have to choose to use them. And the U.S. can also introduce a stronger set of budget rules and procedures, doing away with the debt ceiling brinkmanship that creates uncertainty and volatility, without contributing much to fiscal discipline in the U.S. When it comes to China, I would not put the emphasis on public debt per se. I would say that the challenge for China is growth, stability, and innovation. And I don’t think that in this press conference, we have time, David, to speak on this at depth, but I am quite happy to explore that bilaterally.