World Trade Organization says trade between US and China is expected to plunge by 81% in ‘decoupling’
Donald Trump’s tariffs will send international trade into reverse this year, depressing global economic growth, the World Trade Organization has warned.
In its latest snapshot of the global trading system, the Geneva-based institution says it had previously expected goods trade to expand by a healthy 2.7% this year. As a result of Washington’s trade policy, it is now forecasting a 0.2% decline.
Presenting the forecasts, the WTO’s director general, Ngozi Okonjo-Iweala, said she was particularly concerned about the “decoupling” of the US and China, calling it “a phenomenon that is really worrying to me”.
She said trade between the two geopolitical rivals was expected to plunge by 81-91% without exemptions for tech products such as smartphones, saying this was “tantamount to a decoupling of the two economies” and would have “far-reaching consequences”.
Okonjo-Iweala said the WTO was canvassing its member countries about whether to convene an emergency meeting to discuss the situation.
In its report, the organisation says: “The outlook for global trade has deteriorated sharply due to a surge in tariffs and trade policy uncertainty.”https://interactive.guim.co.uk/datawrapper/embed/SdII5/1/?dark=false
It had previously forecast global GDP growth of 2.8% for 2025, but now expects a weaker 2.2%.
The US has imposed tariffs of 10% on all imports, with much higher rates for China totalling 145%, and on specific sectors including cars and steel. The WTO expects the biggest impact of the policy to be a sharp decline in trade with the US, with other regions still expected to experience growth.
Trump’s far larger “reciprocal” tariffs were paused last week for 90 days after a violent reaction in financial markets. The WTO warns that if these are reimposed after the hiatus, it would have a much greater impact, causing a 0.8% decline in global goods trade.
If this was followed by a surge in “trade policy uncertainty” worldwide, as other countries readjust their policies in response, the WTO suggests the effects would be an even greater 1.5% fall in trade. And in this worst-case scenario, the WTO predicts even weaker global GDP growth, of just 1.7%.
After Trump’s “liberation day” tariff announcement on 2 April was followed by a string of sometimes apparently contradictory statements from Washington, the WTO warns that uncertainty in itself is an important contributor to the risks of a slowdown.
“Uncertainty fosters an increased prudence in decision-making,” the WTO says, pointing to evidence that “trade policy uncertainty can, among other things, dampen business confidence, reducing business investment and thereby impairing economic growth.”
It adds: “Ultimately, the degree to which uncertainty can be managed by firms will be a key determinant of whether the positive macroeconomic momentum observed in 2024 translates into sustained global trade growth in the coming years.”https://interactive.guim.co.uk/datawrapper/embed/yX2ZP/2/?dark=false
The International Monetary Fund and World Bank have also warned about the potential shock to trade from a tariff war.
Ajay Banga, head of the World Bank, said growing uncertainty would lead to slower global growth than expected.
Speaking before the IMF and World Bank spring meetings in Washington next week, he urged developing world countries to negotiate with neighbours and the US to lower tariffs, adding “the quicker we do it, the better”.
Banga said tariffs were often higher in the developing world and were associated with outsourcing jobs from industrialised countries. He argued this economic model held back the development of independent and more resilient nations.
The WTO predicts some “diversion” of trade, as Beijing seeks new markets for its goods outside the US. Chinese exports to regions outside North America are expected to expand by between 4% and 9%, in 2025.
Services trade is not directly hit by Trump’s tariffs, but the WTO expects it to be affected indirectly. “Tariff-induced declines in goods trade weaken demand for related services such as transport and logistics, while broader uncertainty dampens discretionary spending on travel and slows investment-related services,” it warns.
The WTO acts as the watchdog for global trading rules, and has previously provided a forum for the negotiation of international trade deals – but its role has increasingly come into question in recent years, as the progress of globalisation has slowed.
Trump’s tariffs have been applied in complete disregard of the “most favoured nation” rule that forms the bedrock of the system overseen by the WTO – which is meant to mean that trade advantages offered to one member-country should be extended to all.
China has urged the WTO to investigate the impact of the Trump tariffs. Beijing said in a statement to the WTO last week: “Reciprocal tariffs are not – and will never be – a cure for trade imbalances. Instead, they will backfire, harming the US itself.”
Source: The Guardian
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