WTO Warns Global Economy Could Shrink 7% Amid Escalating US-China Trade War

The World Trade Organization (WTO) has issued a stark warning that a full-scale trade war between the United States and China could slash global economic growth by nearly 7% in the long term and fracture the international trading system into rival economic blocs.

WTO Director-General Ngozi Okonjo-Iweala sounded the alarm after US President Donald Trump imposed sweeping new tariffs on all imports, raising duties on Chinese goods to a staggering 125%. China responded with its own retaliatory measures, slapping 84% tariffs on US imports, intensifying fears of an all-out economic confrontation between the world’s two largest economies.

“Bilateral trade between the US and China could fall by as much as 80% under current conditions,” Okonjo-Iweala said. “This tit-for-tat approach carries dangerous global consequences, particularly for developing and least-developed countries.”

Trump, announcing the tariff hikes on April 2 and updating them on April 10, accused China of showing “a lack of respect” to global markets. While the White House granted a temporary 90-day tariff pause to some nations and rolled back duties for most countries to a universal 10%, China was singled out for the steep 125% tariff — up from the previously imposed 104%.

“In many cases, the friend is worse than the foe in terms of trade,” Trump said during a White House press briefing, taking aim not only at China but also at traditional allies like Mexico and Canada for what he called “unfair trade practices.”

The WTO chief warned that a global economic decoupling, with nations aligning themselves along US- or China-led trade blocs, could lead to a major disruption in supply chains and long-term stagnation. “Such fragmentation of the global economy would cut global GDP by 5% to 7% over time,” she said.

Trade between the US and China currently accounts for roughly 3% of all global trade. A breakdown in this relationship, Okonjo-Iweala noted, would have ripple effects far beyond the two nations, particularly harming vulnerable economies already struggling post-pandemic.

The tariffs sparked a dramatic rally in US markets, as investors reacted to the predictability offered by the across-the-board 10% tariff rate and exclusion of allies. The Dow Jones Industrial Average soared 7.87% — its strongest single-day performance in five years — while the S&P 500 rose 9.5% and the Nasdaq jumped 12.2%.

Despite the market boost, the WTO emphasized the long-term risks of escalating protectionism. “Unilateral measures destabilize the international trading order,” Okonjo-Iweala warned. “It is vital that WTO members recommit to resolving disputes through dialogue and uphold the rules-based trading system.”

With tensions rising and China promising further retaliation, global leaders now face mounting pressure to prevent a deeper economic rift that could hinder global recovery and stability for years to come.