The Director-General of the World Trade Organization (WTO), Dr. Ngozi Okonjo-Iweala, has cautioned that the ongoing trade war between the United States and China may lead to a reduction of nearly 7% in global real GDP over the long term if the current trend continues.
In a statement released on Wednesday, Dr. Okonjo-Iweala highlighted that the economic fallout from escalating trade tensions would not be limited to the U.S. and China. Least developed countries (LDCs) are expected to face the worst consequences.
“The negative macroeconomic effects will not be confined to the United States and China but will extend to other economies, especially the least developed nations. Of particular concern is the potential fragmentation of global trade along geopolitical lines. A division of the global economy into two blocs could lead to a long-term reduction in global real GDP by nearly 7%,” she stated.
The WTO Chief expressed concern that continued retaliatory tariffs and non-tariff barriers between the world’s largest economies could reduce bilateral merchandise trade by 80%, triggering global disruptions and economic instability.
“The escalating trade tensions between the United States and China pose a significant risk of a sharp contraction in bilateral trade. Our preliminary projections suggest that merchandise trade between these two economies could decrease by as much as 80%,” she added.
Dr. Okonjo-Iweala further noted that trade between the U.S. and China constitutes about 3% of global trade. A collapse in this trade relationship could have widespread effects on global supply chains, causing major disruptions.
“This tit-for-tat approach between the world’s two largest economies — whose bilateral trade accounts for roughly 3% of global trade — carries wider implications that could severely damage the global economic outlook. Our assessments, informed by the latest developments, highlight the substantial risks associated with further escalation,” she said.
The WTO also raised concerns about “trade diversion,” where goods intended for one market are rerouted to others, potentially flooding local markets and harming domestic industries.
“Moreover, trade diversion remains an immediate and pressing threat, one that requires a coordinated global response. We urge all WTO members to address this challenge through cooperation and dialogue,” Dr. Okonjo-Iweala urged.
She emphasized the urgent need to maintain an open, rules-based international trading system, especially given the global economic challenges of inflation, supply chain vulnerabilities, and slow growth.
“It is critical for the global community to work together to preserve the openness of the international trading system. WTO members have agency to protect the open, rules-based trading system. The WTO serves as a vital platform for dialogue. Resolving these issues within a cooperative framework is essential,” she concluded.
Why This Matters
The WTO’s statement comes as the world continues to recover from the economic impacts of the pandemic and geopolitical tensions. A prolonged tariff dispute between the U.S. and China could further harm global economic recovery, particularly in emerging markets.
For countries like Nigeria and others in the developing world, the consequences could include reduced trade opportunities, diminished foreign direct investment, and heightened volatility in global commodity markets, especially for economies heavily reliant on exports.