WTO Chief warns US-China tariff war could slash trade by 80%

The World Trade Organization chief said Wednesday the US-China tariff war could reduce trade in goods between the two economic giants by 80 percent, pulling down the rest of the world economy.

President Donald Trump raised tariffs on China to 125 percent on Wednesday as the world's two largest economies fought over retaliatory levies.

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

She warned that the conflict could "severely damage the global economic outlook".

Even as he slapped further tariffs on China, Trump paused higher tariffs on the rest of the world for 90 days after dozens of countries reached out for negotiations.

Okonjo-Iweala warned that the world economy risked breaking into two blocs, one centred around the United States and the other 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 said.

She urged all WTO members "to address this challenge through cooperation and dialogue".

Hours earlier, Trump ramped up duties on Chinese goods to 104 percent, only to hike them further when China retaliated by raising tariffs on US imports to 84 percent.

In a social media post announcing the moves, Trump said China had been singled out for special treatment because of "the lack of respect that China has shown to the World's Markets".

US stock markets had slumped around 10 percent in the past week as trade tensions grew, but they surged after Trump announced his pause.