The escalating trade tensions between the United States and China pose a significant risk of a sharp contraction in bilateral trade, as per a statement by the WTO Director-General on escalating trade tensions. Our preliminary projections suggest that merchandise trade between these two economies could decrease by as much as 80%. 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.
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%. 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, the report noted.
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.