Global trade faces setback amid rising tariffs

The WTO Secretariat’s latest Global Trade Outlook and Statistics report, issued today (16 April), comes at a time of growing uncertainty for the global economy – and with it, a sharp deterioration in the prospects for world trade.

Following a strong performance in 2024, global trade is now facing headwinds from a surge in tariffs and rising trade policy uncertainty. The volume of world merchandise trade is projected to decline by 0.2 per cent in 2025 – almost three percentage points lower than it would have been without the recent policy shifts. A modest recovery of 2.5 per cent is expected in 2026.

This marks a notable reversal from forecasts earlier this year, when WTO economists anticipated continued trade expansion, supported by improving macroeconomic conditions.

There are also important downside risks that could lead to a steeper decline in world trade. These include the possible implementation of the currently suspended "reciprocal tariffs" by the United States, as well as the potential for a broader spillover of trade policy uncertainty to other trading relationships.

If enacted, reciprocal tariffs would reduce global merchandise trade growth by an additional 0.6 percentage points. A wider spread of trade policy uncertainty could cut growth by a further 0.8 percentage points. Taken together, these risks would lead to a 1.5 per cent decline in world merchandise trade volume in 2025.

The impact of recent trade policy changes varies sharply across regions.

According to our current forecast, North America now subtracts 1.7 percentage points from global merchandise trade growth in 2025, turning the overall figure negative. Asia and Europe continue to contribute positively but less than in the baseline "low tariff" scenario, with Asia’s contribution halved to 0.6 percentage points. Meanwhile, the combined contribution of other regions – Africa, the Commonwealth of Independent States (CIS), the Middle East, and South and Central America and the Caribbean – also declines somewhat but remains positive. An important driving force behind these changes is the decoupling between China and the United States, resulting from tariffs that now well exceed 100 per cent.

The disruption in United States–China trade is also expected to trigger significant trade diversion, raising concerns among other markets about increased competition from China. As trade is redirected, Chinese merchandise exports are projected to rise by between 4 and 9 per cent across all regions outside North America. At the same time, US imports from China are expected to fall sharply in sectors such as textiles, apparel and electrical equipment, creating new export opportunities for other suppliers able to fill the gap. This could open the door for some least-developed countries to increase their exports to the US market.

Services trade, while not directly subject to tariffs, is also expected to be adversely affected. Declines in goods trade are likely to reduce demand for related services, such as transport and logistics, while broader uncertainty is likely to dampen discretionary spending on travel and to slow investment-related services.

As a result, the volume of global services trade is now forecast to grow by 4.0 per cent in 2025 and 4.1 per cent in 2026 – well below the baseline projections of 5.1 per cent and 4.8 per cent. These figures are part of a new element in our analysis: for the first time, this report includes projections for commercial services trade in volume terms, complementing our long-standing merchandise trade estimates.

The broader economic picture is also affected. World GDP is now expected to grow by 2.2 per cent in 2025 – 0.6 percentage points below the baseline prediction – before recovering slightly to reach 2.4 per cent in 2026. The largest impact will again be in North America, where growth is projected to slow by 1.6 percentage points, followed by Asia (down by 0.4 percentage points) and South and Central America and the Caribbean (down by 0.2 percentage points).

While reciprocal tariffs alone would have a limited effect on global GDP, a wider spread of trade policy uncertainty could nearly double the projected GDP loss, bringing it to 1.3 percentage points below the baseline scenario.

All of this follows a notably strong year for trade. In 2024, the volume of world merchandise trade grew by 2.9 per cent, and commercial services trade expanded by 6.8 per cent. With global GDP growing 2.8 per cent at market exchange rates, 2024 was the first year since 2017 – excluding the post-COVID-19 rebound – in which merchandise trade growth outpaced GDP growth. In value terms, merchandise exports rose 2 per cent, to US$ 24.43 trillion, and services exports increased by 9 per cent, to US$ 8.69 trillion, supported by strong global demand.

Although the current outlook is challenging, it is worth recalling that the trajectory of world trade will not be determined by any single economy or bilateral relationship. Much will depend on how the broader international community responds. The fact that 87 per cent of global merchandise trade takes place outside the United States – and that bilateral trade between the United States and China accounts for around 3 per cent – is a reminder of the importance of other trading relationships.

Open, predictable and cooperative trade policies remain essential – not just for trade itself, but for global economic resilience.