WTO chief warns Trump tariff war risks 7% global GDP hit

WTO Director-General Ngozi Okonjo-Iweala cautioned on Tuesday that the ongoing tariff war initiated by the Trump administration could split the global economy into hostile trading blocs, potentially resulting in a 7% reduction in global GDP. Speaking at Semafor's The Next 3 Billion summit, Okonjo-Iweala cited WTO modeling indicating that further erosion of the multilateral rules-based system could lead to a 20% decline in global trade.

However, the organization estimates that overhauling the WTO could generate $3 trillion in new economic output by 2050.

Okonjo-Iweala's warnings are fueled by a chaotic global trade environment initiated by US tariffs just over a year ago, which has prompted middle-power economies to scramble for economic protection. Last week, the EU invited Canada, which has been hit by a 50% US tariff on $20 billion worth of goods, to become the EU's first-ever "associate member," marking a historic effort to shield middle powers from American economic coercion.

Despite the challenges, Okonjo-Iweala noted that global commerce has demonstrated underlying resilience, partly driven by the AI investment boom. Over 40% of trade growth last year was attributed to tech infrastructure trade, and nearly three-quarters of world trade continues to operate under standard WTO terms. "Just because the system is resilient doesn't mean it's robust," she cautioned, emphasizing the need for necessary reforms to prevent further erosion of the rules.

The reforms focus on breaking veto-heavy decision deadlocks, integrating poorer economies into global supply chains, addressing unfair state subsidies, and updating outdated 20th-century trade rules.

Okonjo-Iweala acknowledged that the reform work has begun and is facing significant challenges. However, she expressed hope that WTO members now recognize that the status quo is no longer an option. Additionally, she urged companies seeking to circumvent US duties to explore alternatives beyond standard Asian sources, such as a "China plus Africa" strategy, to secure critical mineral supply chains.