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The head of the World Trade Organization (WTO) has issued a warning regarding the US-China trade war, suggesting it could potentially plunge the world into recession. This concern arises from the possibility of the two major economic powers fully decoupling, which could lead to a 7 percent reduction in global output.
Ngozi Okonjo-Iweala, speaking to the Financial Times, highlighted the impact of US President Donald Trump’s tariffs and China’s retaliatory measures, cautioning that such actions could divide the world into two trading blocs, compelling nations to align with one side. She expressed apprehension over the potential decoupling of US-China trade, emphasizing the need to prevent geopolitical fragmentation that could decrease global real GDP by 7 percent in the long term.
Okonjo-Iweala noted that the US had effectively severed all imports from China through “reciprocal” tariffs, which are set at 145 percent in addition to existing duties, despite temporary exemptions for items like smartphones and electronics. According to a WTO forecast released on Wednesday, Trump’s tariffs—currently at a base rate of 10 percent on all imports—are expected to adversely affect North American trade with the rest of the world.
The forecast indicates that Canada, the US, and Mexico will experience drops in both export and import volumes if Trump’s tariffs persist at 10 percent. Due to the US’s trade agreement with its neighbors, many Mexican and Canadian products are exempt from these protectionist measures, causing the USMCA bloc to become increasingly isolated from the global economy.
The WTO projected that overall USMCA exports would decline by 12.6 percent this year, while imports are anticipated to decrease by 9.6 percent. This contrasts with earlier projections of over 2 percent growth in both categories before Trump’s tariff announcements. Furthermore, if Trump’s elevated “reciprocal” tariffs are reinstated in July following a 90-day pause, global trade in goods could drop by 0.8 percent this year, with potential retaliations shaving off an additional 0.7 percentage points.
The WTO stated that if US tariffs remain at 10 percent, global trade volumes would decrease by 0.2 percent in 2025. Okonjo-Iweala, a former Nigerian finance minister, emphasized the vulnerability of the poorest countries. She noted that among the top ten economies facing the highest reciprocal tariffs, five are least developed countries, and she advocated for restoring them to their previous no-tariff status.
She did, however, acknowledge that the US has a legitimate concern about countries’ excessive reliance on its market, which contributes to a significant trade deficit. She stressed the need for diversification and re-evaluation of over-concentration in the production of certain goods, pointing out that having 95 percent of semiconductors produced in one region and 80 percent of vaccines exported by ten countries does not foster global resilience.
Okonjo-Iweala expressed hope that the WTO, with its 166 members, could facilitate a resolution to the crisis. She noted that although the US was a founding member of the WTO, the Trump administration has increasingly distanced itself from international organizations established post-World War II. One of Trump’s initial actions after assuming office in January was issuing executive orders to commence withdrawing from the World Health Organization and the Paris Climate Accord.
She further stated that WTO members are now more focused on reforming the trade body to ensure it provides a level playing field, recognizing the value of the predictability and stability created by the WTO system.