The Director-General of the World Trade Organization (WTO), Ngozi Okonjo-Iweala, has issued a stark warning over the escalating tariff war between the United States and China, cautioning that it could lead to a dramatic 80 percent collapse in bilateral trade and significantly weaken the global economic outlook.

The statement came shortly after US President Donald Trump imposed fresh tariffs on Chinese goods, raising levies to 125 percent on Wednesday in the latest escalation of a protracted trade dispute between the world’s two largest economies.

China responded with its own tariff hike on US imports, raising duties to 84 percent. Earlier in the day, Trump had already raised tariffs to 104 percent before increasing them further following Beijing’s retaliation.

“The escalating trade tensions between the United States and China pose a significant risk of a sharp contraction in bilateral trade,” Okonjo-Iweala said. “Our preliminary projections suggest that merchandise trade between these two economies could decrease by as much as 80 percent.”

The WTO chief stressed that a breakdown in trade between the two nations, who together account for three percent of world trade, could severely damage the broader global economy. In a more dire projection, she warned of a potential geopolitical split in the world economy, forming two opposing blocs centered around the United States and China.

“Of particular concern is the potential fragmentation of global trade along geopolitical lines. A division of the global economy into two blocs could lead to a long-term reduction in global real GDP by nearly seven percent,” she added.

The remarks follow a week of market turmoil, with US stock indices shedding approximately 10 percent amid fears of a deepening trade war. However, a partial rebound followed Trump’s decision to temporarily pause additional tariffs on dozens of other countries for 90 days in response to appeals for negotiations.

Despite the reprieve, concerns about a broader decoupling of the global trading system remain. The WTO head urged all member states to engage in constructive dialogue and avoid policies that could undermine the multilateral framework.

“The global community must work together to preserve the openness of the international trading system,” said Okonjo-Iweala. “WTO members have agency to protect the open, rules-based trading system. The WTO serves as a vital platform for dialogue. Resolving these issues within a cooperative framework is essential.”

Her comments reflect a growing concern among global economic leaders about the long-term consequences of deteriorating trade relations.

Analysts warn that the latest round of tariffs could disrupt global supply chains, raise consumer prices, and decrease investor confidence, with ripple effects reaching beyond the US and China.