With the approach of 2026, the World Trade Organization has issued a dire prediction to the globe. The prediction warns of the increasing potential for US-China trade disputes to continue to destabilize the international order and undermine geo-economic stability. Events earlier this year may have calmed some tensions. However, experts argue, along with a multitude of international observers, that the US-China trade relationship remains dysfunctional and poses a ‘structural’ threat to the international economic system.
Trump and Xi negotiated a provisional deal to relax tariffs and curb some export restrictions
The U.S. was to cut a further 10% on the tariffs on certain Chinese goods, now averaging 47%, and China was to halt the unilaterally announced export controls on rare earths and buy U.S. beans. At the same time, some analysts had considered this deal a temporary relief; most considered it a step backwards, with the agreements being futile in purpose.
Since the start of the trade war in 2018, U.S. tariffs on Chinese goods have increased 18 times, and the trade deficit with China has dropped from $382 billion in 2022 to $279 billion in 2023, only to pull back to $295 billion in 2024.
The U.S. also saw a nearly 50% drop in imports from China when it was the U.S.’s 2nd largest trade partner from January to June of 2024. This has caused China to focus its trade with Europe, causing potential trouble for the rest of the world.
The WTO fears that the sustained trade friction between the U.S. and China might be negative
The disputes between these two countries cause shocks and reverberations around the world. Everybody feels the effects worldwide, as over 40% of the globe’s GDP is produced by these two.
These disputes directly affect the price of commodities, the level of investments in financial markets, and the output of industrial production. Officials from the WTO explain that the actions that, one at a time, seem like a reasonable process of imposing an additional stage of tariffs that led to a retaliatory sequence of tariffs, and other actions, erode the level of trust in the multilateral and international trade norm, and lead to more international business and investment.
The world is going to be watching closely as we approach the year 2026. The United States and China will be able to improve their relationship, improve world trade and world politics, and finally attain world economic control, based on the trading relationship standoff.
The WTO also talks of risks of trade fragmentation that could arise from countries trying to protect themselves from geopolitical risks
Emerging markets also have collateral damage. Many of the developing economies of these markets are also more vulnerable to economic shocks created by the U.S.–China trade flows, especially the flow of trade in raw materials and the transfer of technological systems and devices that flow from the United States and China to the developing markets.
This kind of disruption can weaken the developing world’s economies and further delay the more rapid development of these countries in terms of the internationally established economic development goals.
The World Trade Organization has encouraged countries to return to the negotiation table and work with each other under the global trading system to trade more. However, the global and political standoffs between different countries in the world make it practically impossible to come to an agreeable and final solution.
The message for companies and investors is simply to be ready for unstable circumstances. The world is going to be watching closely as we approach the year 2026. The United States and China will be able to improve their relationship, improve world trade and world politics, and finally attain world economic control, based on the trading relationship standoff.
