The Director-General of the World Trade Organization has issued a statement addressing the rising trade tensions between the United States and China. According to the Director-General, these tensions could lead to a sharp contraction in bilateral trade, with preliminary projections indicating a potential decrease in merchandise trade by as much as 80%.
The statement emphasizes the potential broader impact of this "tit-for-tat approach" between "the world’s two largest economies — whose bilateral trade accounts for roughly 3% of global trade." The Director-General warns that this could "severely damage the global economic outlook."
The implications are not limited to the United States and China but might extend to other countries, primarily affecting the least developed economies. Of particular concern is the potential "fragmentation of global trade along geopolitical lines," which could result in "a long-term reduction in global real GDP by nearly 7%."
An immediate concern highlighted is the threat of trade diversion, which underscores the need for a "coordinated global response." The statement calls on all members of the World Trade Organization to engage in "cooperation and dialogue" to address these challenges.
The Director-General stresses the importance of global cooperation to maintain the openness of the international trading system. He reaffirms that "WTO members have agency to protect the open, rules-based trading system" and describes the WTO as "a vital platform for dialogue." The resolution of these issues within a cooperative framework is deemed "essential."