The World Trade Organization (WTO) has issued a warning that the fragmentation of world trade could lead to a 5% reduction in global gross domestic product (GDP) by 2050. The WTO noted that the global trading system is experiencing its longest disruption in history, caused by challenges to trade rules, which could negatively affect living standards in a 'geo-fragmented world.'
According to the WTO's annual report, the system is at a critical phase, and the report provides new evidence that a return to unilateral trade policies will entail significant costs. Such a reversal could collapse global GDP by approximately five percent and reduce exports by 18.6 percent by 2050.
The report emphasizes that 'global trade policy and the WTO are facing the most serious and sustained shocks since the creation of the multilateral trading system 80 years ago.' This echoes the warning made by Director-General Ngozi Okonjo-Iweala in March following the start of the Iran war led by the US.
Okonjo-Iweala wrote in the report's introduction that 'we have observed challenges to trade rules on a scale unseen since the establishment of multilateral institutions to support open, stable, and predictable global trade after the Great Depression and World War II.' She also noted that trade cooperation 'has helped narrow the income gap between developing and developed economies and fostered peace among members.'
However, she added that despite the fact that 'the global trade landscape has changed significantly... the fundamental logic of the system, whereby it is better for all economies to cooperate rather than act unilaterally, remains as relevant as ever.'
Increased Restrictions
Prospects darkened after US President Donald Trump began a 'tariff blitz' upon returning to the White House in January 2025, as well as amid growing geopolitical tensions, particularly in the Middle East. The WTO pointed to several factors that undermined cooperation, including shifts in economic power and the increasing significance and diversity of state intervention in markets.
Analyzing the likely development of economic growth under various scenarios, WTO economists concluded that 'geopolitical fragmentation could reduce global GDP by approximately five percent,' Okonjo-Iweala told diplomats on Tuesday. Furthermore, she warned that 'in a world where the WTO disappears and is replaced by a network of free trade agreements (FTAs), losses would be closer to seven percent.'
Moreover, the costs from any weakening of multilateral trade will not be distributed evenly, as the smallest and poorest economies will be particularly vulnerable. Conversely, Okonjo-Iweala stated that if members deliberately strengthen multilateral trade cooperation, protect what works, and reform what doesn't work, this could increase global GDP by approximately three percent.
The WTO, which will present an update to its global trade forecasts on October 8, remains the cornerstone of the rules-based global trading system, with 72 percent of world trade still operating according to its rules. However, the agency's chief economist, Robert Stiger, told AFP that two years ago this share was 80 percent, acknowledging that 'this trend is worrying.'
Stiger noted that another sign of pressure on world trade is that new tariffs and trade restrictions now cover 11 percent of world imports, the highest figure in over 15 years. Despite strong global trade figures, Stiger suggested that artificial intelligence is helping to strengthen the system. He added that some resilience may reflect the growth and boom of AI, as well as the fact that goods enabling AI operation are extremely resource-intensive in terms of trade.
He explained that there are many imports necessary for producing goods that support AI, such as servers, factories, computers, and data centers, and this investment boom 'may mask some decline in world trade that might otherwise occur.' Nevertheless, Stiger warned that 'AI trade tends to be relatively narrow regarding the countries and members benefiting from this trade,' and advised against relying on global trade growth as a guarantee of prosperity.