The U.S.-China decoupling arrives

Axios

16-04-2025

What has been a yearslong economic risk is now reality: The tit-for-tat tariffs effectively end U.S.-China bilateral trade, the final step in the economic decoupling of the world's juggernauts.
That is the new warning from the World Trade Organization on Wednesday in the release of its latest global outlook.
Why it matters: The sudden divorce of the two economies might mean profound pain for American workers and the nation's wealth built on the back of a strong trading relationship.
A prolonged trade fight risks splitting the global trading system into two distinct blocs — countries that trade with the U.S. and those that trade with China.
Stunning stat: The WTO anticipates trade between the U.S. and China will screech to a halt this year.
Trade of merchandise between the two countries will drop by 80%, a drop that would have topped 90% without the White House's recent exemption for smartphones and other tech goods, according to WTO director general Ngozi Okonjo-Iweala.
What they're saying:"The drop in U.S.-China trade of the magnitudes we are talking about is virtually tantamount to a decoupling of the two economies," Okonjo-Iweala told reporters Wednesday morning.
"This is a phenomenon we've talked about before ... and now we're seeing it emerging," Okonjo-Iweala added. " I think this is one of the most worrying factors for us."
The big picture: The total volume of goods traded around the world is expected to contract by 0.2% this year — an abrupt turnaround from the near 3% increase last year.
The decline in world trade would be as large as 1.5% in 2025 if President Trump reinstates the reciprocal tariffs that are now on pause.
Consider the counterfactual: If both trade and trade-policy uncertainty were low, the WTO says, world trade would grow by 2.7% in 2025.
Threat level: The group anticipates the trade slowdown — topped with uncertainty about the tariff endgame — will spill over into weaker global growth.
The WTO expects GDP growth will reach 2.2% in 2025, 0.6 percentage point below its initial forecast that did not account for the global trade war.
That will nudge up slightly to 2.4% next year, "substandard compared to recent history," it writes in the release.
Between the lines: The Trump administration said it would hold trade negotiations with a slew of nations facing reciprocal tariffs over the next 90 days.
But China is the exception. The high, country-specific rates have been paused for all countries, though tariffs on China have only increased.
What's new: Trump ordered the Commerce Department to investigate America's reliance on critical minerals from other countries.
The investigation could further crack down on trade with China, which produces the majority of all critical minerals, many of which are used in defense, energy and electronics sectors.
Any tariffs that stem from the investigation would "take the place" of current reciprocal tariff rates, according to the executive order Trump signed Tuesday.
What to watch: The WTO says countries should cut back excessive reliance on other trading partners, an admission that Trump-like protectionism is the new threat.
"The U.S. has a point when it says too many countries are dependent on its market, or the production of some critical inputs are too concentrated in certain sectors and geographies," Okonjo-Iweala says.
"Building global resilience requires interdependence, not over dependence."