Global trade is expected to decline sharply this year, with the trade between the US and China plummeting by 81% due to a surge in tariffs and trade policy uncertainty.
The World Trade Organization (WTO) has issued a stark warning that global trade is expected to decline sharply this year, with the trade between the US and China plummeting by 81% due to a surge in tariffs and trade policy uncertainty.
The US-China trade relationship is a significant aspect of global commerce, with the two nations accounting for over $700 billion in bilateral trade annually.
The US is China's largest trading partner, while China is the US's second-largest trading partner.
The relationship has been marked by both cooperation and conflict, with issues such as 'intellectual property theft' , trade deficits, and tariffs being major points of contention.
The US-China trade deal signed in 2020 aimed to address these issues, but its long-term impact remains uncertain.
The Impact of Trump’s Tariffs on Global Trade
The WTO had previously forecast goods trade to expand by 2.7% this year, but Washington‘s trade policy has led to a revised forecast of a 0.2% decline. Donald Trump‘s tariffs have been applied with disregard for the ‘most favoured nation’ rule, which forms the bedrock of the system overseen by the WTO.
The Trump administration implemented tariffs on imported goods to protect American industries and create jobs.
In 2018, a 25% tariff was imposed on steel imports from countries including China, Canada, and Mexico.
The following year, a 10% tariff was applied to $200 billion worth of Chinese goods.
Tariffs are taxes levied on imported products to raise revenue or protect domestic industries.
They can also lead to retaliatory measures from other countries, potentially harming the US economy.
Decoupling and its Consequences
The WTO warns that the decoupling of the US and China is a phenomenon that is really worrying to me. Trade between the two geopolitical rivals is expected to plunge by 81% – 91% without exemptions for tech products such as smartphones. This would have far-reaching consequences, including a decline in global GDP growth from 2.8% to 2.2%.
The US-China decoupling refers to the gradual disengagement of economic and trade ties between the two countries.
The term gained prominence in 2020, as tensions escalated over issues like intellectual property theft, forced technology transfer, and human rights concerns.
According to a report by the Peterson Institute for International Economics, US exports to China declined by 14% in 2020, while Chinese imports to the US decreased by 12%.
The decoupling has significant implications for global trade, economic stability, and technological innovation.
The Biggest Impact of Trump’s Tariffs
The WTO expects the biggest impact of the policy to be a sharp decline in trade with the US – with other regions still expected to see growth. However, if Trump‘s ‘reciprocal’ tariffs are reimposed after a 90-day hiatus, it would have a much greater impact, causing a 0.8% decline in global goods trade.
The Role of Trade Policy Uncertainty
The WTO warns that uncertainty in itself is an important contributor to the risks of a slowdown. ‘Uncertainty fosters an increased prudence in decision-making,’ the WTO warns, pointing to evidence that ‘trade policy uncertainty can, among other things, dampen business confidence, reducing business investment and thereby impairing economic growth.’
A Diversion of Trade
Chinese exports to regions outside North America are expected to expand, by between 4% and 9%, in 2025. However, the WTO warns that this diversion of trade would have limited benefits for China, as it would not address the underlying structural issues that led to the trade imbalance.
The Impact on Services Trade
Services trade is not directly hit by Trump‘s tariffs, but the WTO expects it to be affected indirectly. ‘Tariff-induced declines in goods trade weaken demand for related services such as transport and logistics, while broader uncertainty dampens discretionary spending on travel and slows investment-related services,’ it warns.
A Call for Reforms
The WTO acts as the watchdog for global trading rules, but its role has increasingly come into question in recent years, as the progress of globalization has slowed. The WTO is calling for reforms to address the underlying issues that led to the trade imbalance between the US and China.
China has urged the WTO to investigate the impact of Trump‘s tariffs. Beijing said in a statement to the WTO last week: ‘Reciprocal tariffs are not – and will never be – a cure for trade imbalances. Instead, they will backfire, harming the US itself.‘
- theguardian.com | Trump tariffs will send global trade into reverse this year, warns WTO
