The World Trade Organization (WTO) has expressed grave concern over the renewed escalation of trade tensions between the United States and China, warning that a prolonged economic decoupling between the world’s two largest economies could result in global GDP losses of up to 7% over the long term.
In an interview with Reuters, WTO Director-General Ngozi Okonjo-Iweala said she has been in direct communication with officials from both Washington and Beijing, urging them to de-escalate the situation and avoid policies that could deepen divisions in the global trade system.
“We’re obviously worried at any escalation of U.S.-China tensions,” Okonjo-Iweala said. She noted that both sides had previously stepped back from tariff escalations earlier this year, preventing major economic disruptions. “We are really hoping that the two sides will come together and de-escalate because any U.S.-China decoupling will have implications not just for the two biggest economies but also for the rest of the world,” she added.
Global Economic Risks of U.S.-China Decoupling
Okonjo-Iweala emphasized that any move toward economic decoupling — where global trade splits into competing blocs — could have catastrophic consequences for global growth and development. “Such a division could cause up to 7% global GDP losses and double-digit welfare losses for developing countries,” she cautioned.
The WTO chief’s warning comes amid new trade restrictions: China recently imposed export controls on rare earth metals vital to the global technology industry, while U.S. President Donald Trump retaliated with 100% duties on Chinese imports set to take effect next month. These tit-for-tat measures have reignited fears of a full-blown trade war, threatening supply chains and trade stability worldwide.
Revised Global Trade Outlook
Last week, the WTO revised its global trade forecasts, cutting its 2026 global merchandise trade growth projection to 0.5% from 1.8% previously, citing the delayed impact of new U.S. tariffs. However, the WTO raised its 2025 trade growth forecast to 2.4%, indicating a short-term rebound before potential slowdowns caused by escalating trade frictions.
Addressing G20 officials, Okonjo-Iweala warned, “There can be no global financial stability without global trade stability. Pressures on the system have not eased and may intensify.” She noted that trade diversion and protectionism were fueling new barriers, and U.S.-China tensions remain one of the most serious risks to global stability.
Multilateralism Under Strain, WTO Calls for Reform
Despite rising bilateral trade deals and policy fragmentation, the WTO chief stressed that 72% of global trade still operates under WTO rules, demonstrating the resilience of the multilateral trade framework. However, she acknowledged that the WTO must adapt and reform to stay relevant in the changing global economic landscape.
Okonjo-Iweala said the organization must use the current “crisis of multilateralism” as an opportunity to modernize trade rules, address challenges in digital trade, services, and green trade, and strengthen global cooperation.
“There are global problems that cannot be solved by any one country alone,” she said. “We need global cooperation and reform to ensure that the WTO remains efficient, flexible, and relevant.”
Encouraging U.S. Engagement with WTO
Okonjo-Iweala also confirmed that she had a positive meeting with Deputy U.S. Trade Representative Joseph Barloon, newly confirmed as the U.S. Ambassador to the WTO. She expressed appreciation for the U.S. decision to remove the WTO from its list of planned spending cuts and said progress was being made toward settling U.S. arrears to the trade body.
As the U.S. and China continue to spar over trade policy, the WTO’s warning underscores the global economic stakes involved. A prolonged decoupling could stifle growth, disrupt supply chains, and harm developing economies. With the WTO pushing for reform, cooperation, and dialogue, the coming months will be crucial in determining whether global trade stability can be restored.
