An escalation of trade and tariffs tensions between the U.S. and China would have “costly” economic consequences around the world, Gita Gopinath, deputy managing director of the International Monetary Fund told CNBC on Wednesday.

“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,” she said.

The U.S. and China are trading with one another less, and some parts of their trade is being re-routed through other countries, she added.

Trade tensions between the U.S. and China and the European Union and China have been mounting this year, with both the U.S. and EU implementing higher tariffs on some Chinese goods over what they claim are unfair trade practices from Beijing.

China has also announced higher temporary tariffs on some imports from the EU as the tit-for-tat measures continue.

If tariffs were escalated, modelling from the IMF suggests it would be “costly for everybody,” Gopinath told CNBC’s Karen Tso on the sidelines of the agency’s annual meeting in Washington.

“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 explained.

Gopinath’s comments come after IMF Managing Director Kristalina Georgieva said last week that international trade would no longer be the “engine of growth” it once was, and that “retaliatory” trade measures could hurt those imposing them as much as their targets.

Tim Adams, CEO of the Institute of International Finance, also warned Wednesday that tariff proposals from U.S. presidential candidate Donald Trump would interrupt the path of disinflation and could lead to higher interest rates.

The IMF’s Gopinath said it would benefit both the U.S. and China to have “good working relations,” noting that this was also important for the rest of the world.

It is “in everyone’s self interest that these relationships are maintained,” she said.

The IMF warned in its recent World Economic Outlook report that increasing protectionist policies were a downside risk to growth.

“A broad-based retreat from a rules-based global trading system is prompting many countries to take unilateral actions. Not only would an intensification of protectionist policies exacerbate global trade tensions and disrupt global supply chains, but it could also weigh down medium-term growth prospects,” the report said.

— CNBC’s Jenni Reid contributed to this story

The International Monetary Fund (IMF) warned of a possible worsening of the state of China’s property market as it trimmed its growth expectations for the world’s second-largest economy.

In a report published Tuesday, the IMF trimmed its forecast for growth in China for this year to 4.8%, 0.2 percentage points lower than in its July projection. In 2025, growth is expected to come in at 4.5%, according to the IMF.

The Washington, D.C.-based organization also highlighted that China’s property sector contracting by more than expected is one of many downside risks for the global economic outlook.

“Conditions for the real estate market could worsen, with further price corrections taking place amid a contraction in sales and investment,” the report said.

Historical property crises in other countries like Japan (in the 1990s) and the U.S. (in 2008) show that unless the crisis in China is addressed, prices could correct further, the IMF’s World Economic Outlook noted. This in turn could send consumer confidence lower and reduce household consumption and domestic demand, the agency explained.

China has announced the introduction of various measures aimed at boosting its fading economic growth in recent months. In September, the People’s Bank of China announced a slate of support such as reducing the amount of cash banks are required to have on hand.

Just a few days later, China’s top leaders said they were aiming to put a halt to the slump in the property sector, saying its decline needed to be stopped and a recovery needed to be encouraged. Major cities including Guangzhou and Shanghai also unveiled measures aiming to boost homebuyer sentiment.

China’s Minister of Finance then earlier this month hinted that the country had space to increase its debt and its deficit. Lan Fo’an signaled that more stimulus was on its way and policy changes around debt and the deficit could come soon. The Chinese housing ministry meanwhile announced that it was expanding its “whitelist” of real estate projects and speeding up bank lending for those unfinished developments.

Some measures from the Chinese authorities have already been included in the IMF’s latest projections, Pierre-Olivier Gourinchas, chief economist at the IMF told CNBC’S Karen Tso on Tuesday.

“They are certainly going in the right direction, not enough to move the needle from the 4.8% we’re projecting for this year and 4.5% for next year,” he said, noting that the more recent measures were still being assessed and have not been incorporated into the agency’s projections so far.

“They [the more recent support measures] could provide some upside risk in terms of output, but this is the context in which the third quarter of Chinese economic activity has disappointed on the downside, so we have this tension between, on the one hand, the economy is not doing as well, and then there is a need for support. Is there going to be enough support? We don’t know yet,” Gourinchas said.

China last week reported third-quarter gross domestic product growth of 4.6%, slightly higher than the 4.5% that economists polled by Reuters had been expecting.

In its report, the IMF also noted potential risks to the economic measures.

“Government stimulus to counter weakness in domestic demand would place further strain on public finances. Subsidies in certain sectors, if targeted to boost exports, could exacerbate trade tensions with China’s trading partners,” the agency said.