US-China trade war could shrink global GDP by 7%, Okonjo-Iweala warns

Ngozi Okonjo-Iweala, director-general (DG) of the World Trade Organisation (WTO), says the United States and China’s trade war could reduce global gross domestic product (GDP) by 7 percent.

On Wednesday, United States President Donald Trump raised China’s tariff rates from 104 percent to 125 percent and paused tariffs for dozens of other countries.

In a statement on Wednesday, Okonjo-Iweala said the US and China accounted for three percent of world trade combined.

She said the escalating trade war between the two economic giants could slash trade between both countries by up to 80 percent.

The DG warned that the conflict could severely damage the global economic outlook.

“The escalating trade tensions between the United States and China pose a significant risk of a sharp contraction in bilateral trade,” she said.

“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%.”

The WTO DG further said that 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,” she said.

“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.”

On April 4, Okonjo-Iweala said the recent tariffs announced by the US will have significant implications for global trade and economic growth prospects.