Trade wars may promise an advantage for individual countries, but when governments respond to tariffs with more tariffs, the economic damage can spread across the entire world. A new warns that a further breakdown in global trade cooperation could sharply reduce economic output and exports, with the poorest countries facing some of the steepest losses.
The WTO’s economists modelled what could happen if the global economy split into competing geopolitical blocs. By 2050, global GDP would be 5.1% lower and exports 18.6% lower than under a more cooperative system, according to the report.
In a more severe scenario, where the WTO is replaced by a patchwork of free trade agreements, global GDP could fall 6.9% and exports by nearly 27%.
The findings offer a stark explanation for why a global trade war can become a situation in which there are no clear winners. Measures designed to protect domestic businesses can prompt retaliation from trading partners, disrupt supply chains and divert trade away from the most efficient producers.
WTO warns global trade is at a ‘critical juncture’
The WTO said the international trading system is facing its most serious disruption since it was established about 80 years ago.
described the system as being at a “critical juncture”, pointing to four major pressures: the changing distribution of economic power, greater government intervention in markets, the transformation of trade through digitalisation and global value chains, and rising political tensions.
“The rules are under strain and they really are having an impact. And if things fell apart at the global multilateral level, our scenarios are saying these would be the costs, and those costs would be quite large,” Staiger said.
Trade policy uncertainty has risen sharply as governments increasingly use tariffs, subsidies, export controls and industrial policies to pursue domestic economic and strategic goals.
About still takes place under WTO most-favoured-nation tariff terms. But that share has fallen from roughly 80% in 2022, a decline Staiger described as a “worrisome trend”.
The WTO’s 166 members have also struggled to agree on reforms. A ministerial meeting in Yaounde, Cameroon, in March failed to produce agreement on a reform package, although negotiations have since resumed in Geneva on issues including decision-making, dispute settlement, subsidies and state intervention.
Why trade fragmentation could hurt poorer countries most
The WTO’s modelling shows that the economic consequences of a fractured trading system would not be evenly distributed.
Least-developed countries could gain the most from stronger global cooperation, but they could also suffer the largest losses if trade becomes fragmented along geopolitical lines.
Regional and sector-specific trade agreements are becoming increasingly common as countries seek alternatives amid rising trade tensions. The WTO says such arrangements can complement the multilateral system, but they could also weaken it if they develop into competing blocs.
Staiger said regional agreements and plurilateral initiatives could strengthen global trade cooperation, but warned that they could instead encourage countries to favour selected partners and raise barriers against others.
WTO rules help limit discrimination against countries outside such agreements and place conditions on how free trade agreements are structured.
The organisation’s economists also modelled a more cooperative future. Stronger multilateral cooperation could increase global GDP by 2.9% and raise exports by almost 18%, compared with the more fragmented scenarios.
WTO says global trade rules need reform
The report comes as the trading system faces pressure from changing economic relationships and increasingly interventionist government policies.
In March, a group of WTO members agreed to move forward with baseline digital trade rules through a plurilateral agreement, despite opposition from some members. The development highlighted both the demand for new rules and the difficulty of securing agreement across the full WTO membership.
said the organisation’s founding principle remains relevant despite the changes in global trade.
“We have seen trade rules challenged on a scale unseen since multilateral institutions were created to underpin open, stable and predictable global trade in the wake of the Great Depression and the Second World War,” Okonjo-Iweala wrote in the report’s preface.
She said trade cooperation had “helped narrow income gaps between developing and advanced economies, and contributed to peace among members”.
Although “the global trading landscape has changed significantly… the founding logic of the system, that all economies are better off cooperating rather than acting unilaterally, remains as relevant today as ever”, she added.
The WTO is due to update its global trade forecasts on October 8. For now, its modelling presents a clear choice between deeper fragmentation and stronger cooperation.
“In contrast, if members act purposefully to reinforce multilateral trade cooperation, safeguard what works, reform what doesn’t, it could boost global GDP by roughly three percent,” Okonjo-Iweala said.