WTO warns global economic fragmentation could hit output and trade

13:13

By: Azzat Manal

WTO warns global economic fragmentation could hit output and trade

The World Trade Organization (WTO) has warned that escalating trade and geopolitical tensions among major economic powers could fragment the global economy into competing blocs, potentially carrying significant costs for global output and international trade.

In its latest annual report, the WTO said the multilateral trading system is entering a critical period as economic power shifts, industrial policies expand and digital trade grows rapidly. At the same time, geopolitical tensions between major economies are placing additional pressure on the rules governing international commerce.

The organization said existing trade rules have struggled to keep pace with these rapid changes, increasing the need to reform the international trading system. Without such reforms, growing divisions could deepen uncertainty for businesses and investors while widening economic disparities between countries.

Economic simulations prepared by WTO experts indicate that a world divided into competing geopolitical blocs could suffer substantial long-term losses. Under such a scenario, global gross domestic product could be around 5.1% lower, while worldwide exports could decline by 18.6% by 2050, according to figures reported by Reuters.

The economic consequences would not be evenly distributed. Lower-income economies and countries that depend heavily on international trade could face some of the greatest challenges if market fragmentation limits access to global supply chains, investment and overseas markets.

The warning comes as the WTO's 166 members continue to face difficulties in reaching agreement on comprehensive reforms to the organization. Negotiations have continued following disagreements over reform proposals discussed at the ministerial meeting held in Yaoundé, Cameroon, in March.

Current discussions include decision-making procedures, the dispute settlement system, government subsidies and rules governing industrial policies. These issues have become increasingly important as governments play a larger role in supporting domestic industries and reshaping their economies.

Reaching consensus has also become more difficult as countries increasingly pursue regional and sector-specific trade agreements instead of relying exclusively on the multilateral framework. Tensions between major trading powers have further complicated efforts to maintain a unified global system.

Broad U.S. tariff measures have added to uncertainty in international commerce, prompting trading partners and companies to reassess supply chains, trade arrangements and routes for international exchange.

The WTO now faces a major challenge in adapting its rules to a rapidly changing global economy while preserving a common framework for international trade. Failure to contain fragmentation could weaken cross-border commerce, disrupt supply networks and limit opportunities for long-term economic growth, particularly for economies that remain highly dependent on access to global markets.