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The US trade war risks to withdraw the world into a recession, the head of the World Trade Organization has warned, with the determined global production to fall 7 percent if both economic powers completely break down.
Ngozi Okonjo-Iweala told Financial Times that US President Donald Trump’s tariffs and China’s vengeance taxes risked dividing the world into two trade blocs as countries are forced to choose to be on one side or the other. “
“We are very concerned that we are seeing a possible breakdown of American/China trade; we really want to avoid a case of geopolitical fragmentation,” said the Director General of the WTO.
“This will lower the real global GDP by 7 percent in the long run,” she added.
Okonjo-Iweala said the US had in fact stopped all imports from China with its “reciprocal” tariffs, which were set to 145 percent in addition to pre-existing tasks, although temporarily excluded items such as smartphones and electronic devices.
Trump’s tariffs – currently at a base rate of 10 percent on all imports – will also damage North American trade with the rest of the world, WTO said in a prediction of Wednesday.
Canada, the US and Mexico will be the only countries where both exports and import volumes will fall if Trump’s tariffs are maintained to 10 percent.
Trump has excluded many Mexican and Canadian products from his protectionist measures, as the US has a trade agreement with its neighbors, increasingly isolating the USMCA block from the global economy.
USMCA overall exports will fall 12.6 percent this year while their imports are expected to fall 9.6 percent, WTO said. This is compared to previous predictions of more than 2 percent of growth in both categories of trade prior to Trump’s tariff notifications.
The trade body said that if Trump’s highest “reciprocal” tariffs were to be reset in July after a 90-day pause, global trade with goods could drop 0.8 percent this year. If other countries retaliate, uncertainty can shave 0.7 more percentage points, WTO said.
If US tariffs are maintained at 10 percent, the total volumes of global trade would drop by 0.2 percent in 2025, the WTO said.
Okonjo-Iweala, a former Nigerian finance minister, said the poorest countries were already suffering.
“They are very vulnerable. Among the 10 economies that face the highest reciprocal tariffs the five less developed countries,” she said. “We must really think about their return to the tariff situations they were in before.”
However, she admitted that the US had “a point” that the places were hanging in her market, running a large trade deficit. “They need to be diversified. I think that the excessive concentration in the production of certain goods should be looked at,” said Okonjo-Iweala.
“Having 95 percent of semiconductors produced in part of the world does not build global resistance. Having 80 percent of vaccines exported from 10 countries around the world do not build resistance,” she added.
Okonjo-Iweala said she hoped her Geneva-based body, which has 166 members, could help the mediator a solution to the crisis.
The US was a founding member of the WTO, but the Trump administration has increasingly avoided international organizations set up after World War II.
One of Trump’s first moves after taking office in January was the signing of executive orders starting the process of removing the World Health Organization and the Paris Climate Agreement.
WTO members are now more interested in reforming the trade body in order to maintain a playing field, said Okonjo-Iweala.
“One of the good things that come out of this is that members are seeing the value and stability of the system created by the WTO.”
