In the event of a full-blown trade war, global trade would collapse by 17%, a move that would rival the Dot Com bust, warned the World Trade Organization (WTO).
Keith Rockwell, director for information and external relations at WTO, told regional Asian parliamentarians on Tuesday that the global synchronized decline is due to protectionist measures on the rise.
Rockwell said tariffs aren't uncommon between trading partners, but the sheer magnitude of trade duties between the US and China since early 2018 have been disturbing.
"Between October 2017 and October 2018, measures were put in place affecting US$588 billion worth of trade," said Rockwell, at the event organized by the S. Rajaratnam School of International Studies (RSIS) and the WTO.
This amount of tariffied trade comes in at seven times more than the previous year and doesn't include the recent tariff escalation.
Rockwell said, during the conference about international trade flows, that the WTO has reviewed 24 trade dispute settlement cases in 2018, mostly related to the deepening trade war between the US and China.
The increased trade tensions have forced the International Monetary Fund (IMF) to slash its global growth forecast from 3.7% to 3.5%.
"If the two sides carry through with their threats to wipe out all bilateral trade via prohibitive tariffs, this could have the impact of knocking off even more," he added.
Rockwell said global imports of capital goods dropped 3% in 1Q19, the lowest level seen in over three years and a warning that the global economy is cycling down through summer. "We see uncertainty rampant, we see manufacturing output stalling, and export orders are down. All of this bodes ill for economic growth," he said.
Roberto Azevedo, WTO director-general, also spoke at the conference and said world trade stood at 4.6% in 2017, it fell to 3% last year. In 4Q18, trade growth had the most significant drop in a decade, he said.
"When levels of uncertainty are so high, trade simply cannot play its full role in driving GDP growth," he added.
"We're working to respond to the challenges in global trade today... We're also working to support our members in their efforts to reform the WTO."
The best way to visualize just how dangerous the trade war threat is to the global flow of trade, and the world economy in general, below is a chart on the year-over-year changes in global trade as measured by the IMF's Direction of Trade Statistics, courtesy of BMO's Ian Lyngern. It shows the absolutely collapse in global exports as broken down into three categories:
Exports to the world (weakest since 2009),
Exports to advances economies (also lowest since 2009), and
Exports to the European Union (challenging 2009 lows).
Even if the trade war is deescalated, the damage to the global economy is irreversible. The world is likely teetering on the edge of a trade recession, making the likelihood of global trade collapsing by 17% extraordinary high.