The head of the World Trade Organization has issued a stark warning that escalating tensions between the United States and China could reduce global economic output by up to 7% over the long term if the world’s two largest economies continue down the path of decoupling.
In an exclusive interview with Reuters on Thursday, WTO Director-General Ngozi Okonjo-Iweala expressed deep concern about the recent spike in trade tensions and revealed she has been engaging with officials from both countries to encourage dialogue and de-escalation.
“We’re obviously worried at any escalation of U.S.-China tensions,” Okonjo-Iweala said, noting that both sides had previously backed away from tariff escalations earlier this year. “Similarly, we are really hoping that the two sides will come together and they will de-escalate, because any U.S.-China tensions and U.S.-China decoupling have implications not just for the two biggest economies in the world, but also for the rest of the world.”
The WTO chief provided specific economic projections that paint a troubling picture of prolonged economic separation. “Any kind of decoupling that divides the world into two trading blocs would result in significant global GDP losses in the longer term – up to 7% global GDP losses and double-digit welfare losses for developing countries,” she stated.
The warning comes amid fresh trade hostilities between Washington and Beijing. Last week, China imposed new export controls on rare earth metals essential for the technology sector, prompting President Donald Trump to respond with new 100% duties on Chinese imports set to take effect next month.
Okonjo-Iweala addressed G20 officials on Wednesday evening, emphasizing the interconnectedness of trade and financial stability. “Pressures on the system have not eased and may intensify,” she told the group. “The full effects of recent tariffs are still to be felt. Trade diversion is fueling protectionist sentiment elsewhere. And escalating tensions between the United States and China remain a serious risk.”
The WTO recently revised its trade forecasts downward, cutting its 2026 projection for global merchandise trade volume growth to 0.5% from 1.8% in August, citing expected delayed impacts from Trump’s tariffs.
Despite the challenging environment, Okonjo-Iweala noted that most WTO members have refrained from joining the tariff war, with 72% of global trade still following WTO rules. She described the rules-based multilateral system as proving “resilient despite the most severe policy shock in eight decades.”
The WTO chief also emphasized the need for reform within global trade institutions, arguing that organizations like the WTO must become more flexible and efficient to handle new trade opportunities in digital trade, services, and green trade.
“There’s absolutely no doubt that there are global problems that cannot be solved by any one country alone, and you will need global cooperation to do it, and that’s where multilateralism will still be very, very relevant,” she said. “But to make sure that the organizations are really appreciated, we have to reform, and at the WTO, we are ready to work on this.”
Okonjo-Iweala expressed optimism about recent engagement with U.S. officials, noting she had a productive meeting with newly confirmed U.S. Ambassador to the WTO Joseph Barloon and appreciated that the U.S. had removed the WTO from its list of planned spending cuts to international organizations.
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