WTO cuts global trade forecast amid rising tariffs

The World Trade Organization (WTO) cuts its growth forecast for merchandise trade this year as uncertainty over US President Donald Trump’s tariffs, the US-China trade standoff and broader geopolitical tensions roil international commerce.

The global trade body sees the volume of merchandise trade declining by 0.2% this year, or almost three percentage points lower than it would have been without the US-led trade war.

Trade could shrink even further, to -1.5% in 2025, if the situation deteriorates, the Geneva-based organization said in its latest Global Trade Outlook and Statistics report released on Wednesday, 16 April.

Trade is, however, expected to rebound by 2.5% next year.

Services trade, though not directly subject to tariffs, is also expected to be adversely affected, with the global volume of commercial services trade now forecast to grow by 4.0%, slower than expected.

The WTO report comes two weeks after Trump announced the so-called reciprocal import taxes ranging from 10% to 50%. Days later, Trump suspended the highest rates for 90 days, or three months, while retaining 10% as the floor for all countries except China, whose exports to the US now face duties in excess of 100%.

The temporary respite was given to let bilateral negotiations play out.

If Trump pushes ahead with the higher tariffs following the 90-day reprieve, the decline in trade will worsen.

“Together, reciprocal tariffs and spreading trade policy uncertainty will lead to a 1.5% decline in world merchandise trade this year,” the WTO said in the report.

“I am deeply concerned by the uncertainty surrounding trade policy, including the US-China stand-off. The recent de-escalation of tariff tensions has temporarily relieved some of the pressure on global trade,” Director-General Ngozi Okonjo-Iweala said.

“However, the enduring uncertainty threatens to act as a brake on global growth, with severe negative consequences for the world, the most vulnerable economies in particular,” Okonjo-Iweala said, while exhorting WTO members “to inject dynamism into the organization, foster a level-playing field, streamline decision-making, and adapt agreements to better meet today’s global realities.”

At the start of the year, the WTO expected to see continued expansion of world trade in 2025 and 2026, with merchandise trade growing in line with world GDP and commercial services trade increasing at a faster pace.

However, the new tariffs introduced since January prompted WTO economists to reassess the trade situation, resulting in a substantial downgrade to their forecast for merchandise trade and a smaller reduction in their outlook for services trade.

Risks to the merchandise trade forecast persist, particularly from the reactivation of the suspended “reciprocal tariffs”, as well as the spread of trade policy uncertainty that could impact non-US trade relationships.

“If realized, reciprocal tariffs would reduce global merchandise trade volume growth by 0.6 percentage points in 2025 while spreading trade policy uncertainty could shave off another 0.8 percentage points. Together, reciprocal tariffs and spreading trade policy uncertainty would lead to a 1.5% decline in world merchandise trade in 2025,” the report said.

“Our simulations show that trade policy uncertainty has a significant dampening effect on trade flows, reducing exports and weakening economic activity,” WTO chief economist Ralph Ossa said. “Moreover, tariffs are a policy lever with wide-ranging, and often unintended consequences. In a world of growing trade tensions, a clear-eyed view of those trade-offs is more important than ever.”