The World Trade Organization (WTO) has warned that the global trading system is facing its most serious and sustained disruption in decades, with growing challenges to international trade rules threatening economic growth and living standards.
The WTO issued the warning in its annual report on Tuesday, saying the global trading system had entered a decisive phase and cautioning that a return to unilateral trade policies could come with significant economic costs.
According to the organisation, a shift away from multilateral trade cooperation could reduce global GDP by about five per cent and cut exports by 18.6 per cent by 2050.
“Global trade policy and the WTO are experiencing the most serious and sustained disruptions since the multilateral trading system was created 80 years ago,” the report said.
The warning echoed earlier concerns raised by WTO Director-General Ngozi Okonjo-Iweala in March, shortly after the beginning of the US-led war on Iran.
“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 international trade cooperation had played an important role in reducing economic inequality between developing and advanced economies while also contributing to peace among member countries.
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.
Safeguard What Works
The WTO said the global outlook had worsened following US President Donald Trump’s tariff measures after his return to the White House in January 2025, alongside rising geopolitical tensions, particularly in the Middle East.
It identified several developments that have weakened international cooperation, including changes in global economic power and the increasing use of government intervention in markets.
WTO economists assessed the potential economic impact of different scenarios and found that greater fragmentation along geopolitical lines could significantly reduce global economic output.
“Fragmentation along geopolitical lines could reduce global GDP by about five percent”, Okonjo-Iweala told diplomats on Tuesday.
She warned that the consequences could be even more severe if the WTO were to disappear and be replaced by a network of free trade agreements.
“And ‘in a world where the WTO disappears and is replaced by a network of FTAs [free trade agreements], the losses would be closer to seven percent”, she warned.
The WTO also cautioned that the effects of weakening multilateral trade would not be shared equally, with smaller and poorer economies likely to be particularly exposed.
“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.
Growing Restrictions
The WTO remains a central institution in the rules-based global trading system, with 72 per cent of global trade still operating under its rules.
However, that figure stood at 80 per cent two years ago, according to the organisation’s chief economist, Robert Staiger.
“At the same time, two years ago, that share stood at 80 percent,” Staiger told AFP, acknowledging that “the trend is disturbing”.
He said another indication of increasing pressure on global trade was the expansion of tariffs and other restrictions.
“Another sign that global trade is coming under pressure is that new tariffs and trade restrictions now cover 11 percent of global imports, and that represents the highest coverage in over 15 years,” he said.
Despite the growing restrictions, global trade figures have remained relatively strong, with Staiger suggesting that the rapid expansion of artificial intelligence may be contributing to the resilience.
“We also need to acknowledge that some of the resilience may be reflecting AI and the AI boom and the fact that AI-enabling goods are extremely trade intensive,” he said.
“There’s a lot of imports that go into producing AI enabling goods like servers and factories and computers and data centres, and that investment boom… may be masking some of the drop in world trade that might otherwise be occurring.”
Staiger, however, warned that the benefits of AI-related trade were concentrated among a relatively limited number of countries.
“AI trade tends to be relatively narrow in terms of the nations and the members that are enjoying that trade,” he said.
He cautioned against relying on continued global trade growth as evidence that the wider trading system is safe from disruption.
“Putting one’s eggs in the basket, [thinking] that everything is fine because world trade continues to grow at a nice clip, is a bit of a risky endeavour,” he said.
Source: AFP
