Why $6.9T could be wiped out from world's GDP
What's the story
The World Economic Forum (WEF) has warned that a full East-West economic decoupling could cost the global economy as much as $6.9 trillion in GDP. The report highlights that the ongoing trend of fragmentation has already cut GDP growth by between $213 billion and $307 billion, while also increasing inflation by 0.2-0.3%. Emerging markets and developing economies (EMDEs) are likely to be hit hardest due to limited access to capital amid this shift toward geo-economic fragmentation.
Rising challenges
US tariffs reshape global trade, financial system
The WEF report also highlights that countries are increasingly imposing unexpected trade and financial restrictions, raising risks for businesses and economies worldwide. The US has been trying to reshape the global trade and financial system with tariffs and other restrictions, especially against China. In retaliation, Beijing has used its leverage in critical minerals supply chains and diverted exports to post a record trade surplus in 2025.
Global response
Multilateral institutions under threat
The US has also extended tariffs and restrictions to its allies, prompting them to retaliate and diversify their geo-economic partnerships. The WEF report notes that "in 2025 and 2026, severe swings in policy and enforcement by countries reduced certainty and affected decisions on investing and hiring." Rising nationalism, geopolitical tensions, and declining institutional legitimacy have weakened multilateral institutions such as the International Monetary Fund (IMF), World Bank, and World Trade Organization (WTO).
Shifting strategies
WTO's diminished role leads to bilateral agreements
With the WTO's dispute-settlement role diminished, countries are increasingly turning to bilateral agreements and local currency settlements. This shift could reduce economic efficiency and heighten financial stability risks. The WEF report also warns that pressure on central bank independence is growing as governments try to influence monetary policy through rhetoric and policy actions.
Economic impact
Weaponization of economic chokepoints
The WEF estimates that existing trade and financial policies are already slowing growth and raising inflation, though the impact varies across economies. For instance, "US output growth is expected to be 0.4-0.6 pp lower than projected," while neutral countries like Indonesia will see a smaller hit of about 0.1 pp to their output growth. The report also warns governments may increasingly weaponize control over key economic chokepoints, further worsening fragmentation's impact on global economy.