WTO warns global trade fragmentation could slash world GDP by over 5%

The World Trade Organization (WTO) warned on Tuesday that the geopolitical fragmentation of the global trading system into aligned blocs could shrink global gross domestic product (GDP) by 5.1% and reduce global exports by 18.6%.

In an even worse scenario, a total breakdown of multilateral cooperation that replaces the WTO with an unstructured network of bilateral free trade agreements would reduce global GDP by 6.9% and cut global exports by 26.9%.

Conversely, reinforcing multilateral trade cooperation could boost global output by 2.9% and expand global exports by 17.9%, the report showed.

WTO Director-General Ngozi Okonjo-Iweala stressed that global trade faces its most severe period of disruption in 80 years as non-discriminatory rules come under increasing strain.

Okonjo-Iweala noted that around 72% of global merchandise trade still operates under most-favored-nation tariff terms, down from roughly 80% in 2022.

The report emphasized that integration into the multilateral trading system has helped expand trade between members by 140% since 1995 and driven faster economic growth across low- and middle-income economies.

However, gains remain unevenly distributed, with least-developed countries accounting for less than 1% of world trade and facing trade costs in manufacturing and services that exceed those of high-income economies by 50%.

Looking ahead, the report projected that artificial intelligence could increase global trade by 40% by 2040 and add more than 13% to world GDP over the next 15 years, particularly driving growth in digitally deliverable services.