The global economy could lose as much as 10 per cent of its output by 2050 if countries fail to reform and preserve the World Trade Organisation’s multilateral trading system, the WTO has warned, as geopolitical rivalries increasingly reshape commerce.
The world trading system is suffering its biggest disruption in 80 years, with trade rules being challenged on a scale not seen since the institution was created in the aftermath of the Great Depression and the Second World War, the WTO said in its World Trade 2026 report on Tuesday.
In projections where multilateral trade rules are eroded in a “geo-fragmented world”, global gross domestic product would shrink by 5.1 per cent and exports would fall by 18.6 per cent if trade co-operation between nations is organised around geopolitical blocs.
In simulations of a world dominated by free-trade agreements, the WTO estimates global economic output loss of 6.9 per cent and world exports plunging almost 27 per cent.
The gap between strengthened multilateral co-operation and erosion of the multilateral trading rules is equivalent to an opportunity cost of about 5 per cent to 10 per cent of global real GDP, the WTO warned.
Comparing the two scenarios provides an indication of the costs of losing the WTO and the potential gains from deeper co-operation, it added.
“The multilateral trading system has been repaired and renewed before, and I believe it can be again,” WTO director general Ngozi Okonjo-Iweala said. “WTO members are now engaging actively on reform in full recognition that the status quo is not an option.”
Stark warning
The WTO’s stark warning about economic losses and plunging exports comes amid increasing trade disputes between global economic powerhouses. The US-China trading row sent shock waves through the worldwide economy, after the world’s two biggest economies imposed duties on goods worth hundreds of billions of dollars in a retaliatory tariff war.
The US also upended trade co-operation deals with other trading partners around the world, including the European Union and other advanced economies, aggressively imposing duties on goods and services that resulted in retaliatory tariffs on American goods.
The latest example of the diminishing bilateral trade co-operation is the US-Canada trade spat, where decades-old trade treaties and open-market co-operation were replaced with an aggressive tariff regime between the North American neighbours.
While some of these trade disruption around the world reflect long-standing tensions, and some reflect more recent developments related to macroeconomic policies and gaps in domestic social systems, “an important part comes from perceptions that WTO rules have not kept pace with rapidly changing global economic realities, and that they need to adapt”, the WTO report said. “This has placed the world trading system at a critical juncture.”
However, despite the challenges faced by the WTO, its rules remain the essential legal foundation for international commerce.
“The global trading landscape has changed significantly but the founding logic of the system, that all economies are better off co-operating rather than acting unilaterally, remains as relevant today as ever,” Ms Okonjo-Iweala said.
The multilateral trading system has delivered enormous benefits over the past 80 years, helping to create a more integrated and resilient global economy, the WTO director general said.
“The evidence shows that around 72 per cent of global merchandise trade still takes place under the WTO's most-favoured-nation terms, while WTO-led trade co-operation has supported economic growth, helped narrow income gaps between developing and advanced economies, and contributed to peace among members.”
Co-operation gains
In a scenario where the member countries move to strengthen the global multilateral trading system through WTO rule reforms, GDP could see an estimated 3 per cent, or about $3 trillion, boost by midcentury.
For least-developed countries, which currently account for less than 1 per cent of world trade, the gains would be significant, with their GDP projected to increase by 7.7 per cent, or $100 billion, amid tariff and other trade cost reductions.
High-income economies also stand to gain in absolute terms, with projected GDP gains of about $1.7 trillion, while middle-income nations around the globe would gain the equivalent of $1.2 trillion, according to WTO estimates.
The WTO report argued that many of the challenges confronting the multilateral trading system today are a consequence of its own achievements, with the system helping in supporting a nearly 50-fold expansion in global trade over the past eight decades.
While the report does not prescribe a blueprint for WTO reform, it underpins areas where adaptation of trade rules may be needed, as merely preserving the status quo would not preserve the decades-old benefits of the multilateral trading system.
“Rather, the challenge for WTO members is to adapt rules-based co-operation to a more integrated, multipolar and diverse global economy while preserving the openness, predictability and fairness that have underpinned the system's success,” the WTO said.
