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The US-China trade war risks dragging the world into recession, the head of the WTO has warned, with global output set to drop 7 per cent if the two economic powerhouses decouple fully.
Ngozi Okonjo-Iweala, the director-general of the WTO, told the Financial Times that US President Donald Trump’s tariffs and Chinese retaliation risked splitting the world into two trading blocks as countries are forced “to choose to be with one side or the other”.
“We’re very concerned that we’re seeing a potential decoupling of US/China trade — we really want to avoid a case of geopolitical fragmentation,” she added.
Okonjo-Iweala expressed concerns about the impact of the trade war on global real GDP, stating that it could decrease by 7 per cent in the long term if the situation escalates further.
The US has imposed reciprocal tariffs on Chinese imports, effectively cutting off all imports from China. Trump’s tariffs, currently at a base rate of 10 per cent on all imports, may lead to a significant decrease in global trade volumes.
According to the WTO forecast, if Trump’s tariffs are maintained at 10 per cent, Canada, the US, and Mexico will be the only countries where both exports and import volumes will drop. The USMCA bloc, consisting of these three countries, will experience a decline in both exports and imports.
The trade body also warned that if Trump’s higher “reciprocal tariffs” are reintroduced in July, global trade in goods could drop by 0.8 per cent this year. The uncertainty surrounding trade policies could further impact global trade volumes.
Okonjo-Iweala emphasized the vulnerability of the poorest countries in the midst of the trade war, urging for measures to restore them to a no-tariff situation. She also acknowledged the need for countries to diversify their markets and reduce over-dependence on the US market.
As the head of the WTO, Okonjo-Iweala expressed hope that the organization could help broker a solution to the crisis. Despite the Trump administration’s skepticism towards international organizations, WTO members are now focused on reforming the trade body to maintain a level playing field.
In conclusion, the US-China trade war poses significant risks to the global economy, and international cooperation is essential to navigate through these challenges. Stay informed with the White House Watch newsletter to understand the implications of the 2024 US election on Washington and the world.
