US-China trade war could slash bilateral trade by 80%, split global economy

The Director-General of the World Trade Organization, Ngozi Okonjo-Iweala, has warned that escalating trade tensions between the United States and China could lead to an 80 per cent collapse in merchandise trade between the two countries and a long-term split in the global economy.

In a statement issued on Wednesday, Mrs Okonjo-Iweala described the ongoing tariff measures between the world’s two largest economies as a severe threat to the global economic outlook, particularly for developing nations.

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

The WTO, she said, is concerned about the potential fragmentation of global trade, warning that “a division of the global economy into two blocs could lead to a long-term reduction in global real GDP by nearly 7%.”

While the negative macroeconomic effects will be most acute in the United States and China, the impact will ripple across other economies, especially among the least developed countries.

“Trade diversion remains an immediate and pressing threat, one that requires a coordinated global response,” she said.

Calling for diplomacy, Mrs Okonjo-Iweala urged WTO members to step in to de-escalate the dispute through multilateral engagement.

“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.”

The WTO had earlier raised concerns over the potential impact of recent tariff measures announced by the United States, forecasting a 1 per cent contraction in global merchandise trade volumes for 2025.

Background

President Donald Trump, on 2 April, announced a 10 per cent baseline tariff on all imports, starting 5 April, along with higher duties for countries seen as trading unfairly. Nigerian exports to the US will now face a 14 per cent tariff.

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These “reciprocal” tariffs are due to take effect on 9 April. President Trump described the measures as part of his strategy to promote “economic independence” and reduce the US trade deficit, particularly in relation to countries like China and the European Union.

Following global backlash, he suspended the tariff hikes for most countries but singled out China for harsher treatment, raising tariffs on Chinese goods to 125 per cent.

China responded, slapping 84 per cent tariffs on U.S. imports, blacklisting American firms and launching regulatory probes targeting US businesses operating in its market.