The deputy managing director of the International Monetary Fund said a tariff war between the United States and China will be "costly for everybody," CNBC reported.

"We are seeing geopolitically driven trade around the world, which is why when you look at overall trade to GDP that's holding up fine; but who's trading with whom is certainly changing," said the IMF's Gita Gopinath.

Last week at the Economic Club of Chicago, former President Donald Trump doubled down on his support of tariffs on foreign manufacturers, saying they are necessary to protect American jobs and industry.

"To me, the most beautiful word in the dictionary is tariff," Trump told Bloomberg Editor-in-Chief John Micklethwait. "It's my favorite word."

Investors worldwide are concerned about the former president's talk of using tariffs to even trade discrepancies coupled with his rhetoric toward China. Gopinath said the U.S. and China are trading less with one another and some part of their trade is being rerouted through other countries.

"Output is going to be much lower than what we are projecting for all countries in the world. There's going to be pressure on inflation, so that's not the direction in which we should be going," she added.

Yet Trump remains confident his strategy of placing tariffs on imports will pay off.

"We will bring the companies back," Trump said. "We will lower taxes further for companies that will make their product in the USA. We will protect those companies with strong tariffs, because I am a believer in tariffs."

Gopinath said it's in the interest of everyone for the U.S. and China to establish "good working relations" as much of the world depends on their mutual cooperation, saying it's "in everyone's self-interest that these relationships are maintained."

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