Tariff tensions threaten global trade rebound, WTO warns

Global merchandise trade is headed for a decline in 2025, the World Trade Organization (WTO) warned on Wednesday, as US President Donald Trump's renewed tariff push casts a shadow over the fragile recovery in cross-border commerce.

The WTO now expects global goods trade to shrink by 0.2% in calendar year 2025—nearly three percentage points below its earlier baseline forecast. If trade tensions escalate, the contraction could deepen to 1.5%. The revised outlook marks a sharp reversal from the WTO’s previous projections, which anticipated steady growth in line with global economic expansion.

These estimates do not yet account for potential spillovers into services trade.

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On 2 April, Trump announced sweeping “reciprocal tariffs” on countries that impose higher duties on American goods. Central to his 2024 campaign, the policy reignited fears of a global trade war and fresh disruptions to supply chains.

As part of the move, the Trump administration imposed a 27% tariff on Indian imports, citing New Delhi's average 52% duty on US goods. 

Trump later suspended tariffs for 90 days for most trading partners, giving countries time to address Washington's trade concerns. But even as he hit pause, he raised duties on Chinese imports to a stiff 145% and continued sparring with Canada and Mexico over tariffs on their goods.

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The WTO on Wednesday warned that if sustained, such reciprocal measures could trigger serious downside risks, particularly for export-dependent and least-developed countries. North America is expected to bear the brunt, with exports projected to fall 12.6% and imports 9.6% in 2025.

Global goods trade had rebounded modestly in 2024, growing 2.9% after a 1% contraction in 2023, WTO data showed. A limited recovery is forecast for 2026, with trade expected to expand by 2.5%.

"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," said WTO Director-General Ngozi Okonjo-Iweala. Even the recent easing of tariffs offers only temporary relief, she added.

WTO economists had originally projected 2.7% growth in merchandise trade for 2025 and 2.9% in 2026. But the surge in protectionist policies since January prompted a sharp downgrade to the goods trade outlook, along with a more modest cut to services trade.

If fully implemented, reciprocal tariffs could shave 0.6 percentage points off 2025 merchandise trade growth, while rising policy uncertainty may subtract another 0.8 points—leading to a combined 1.5% decline, the WTO warned. 

"Our simulations show that trade policy uncertainty has a significant dampening effect on trade flows, reducing exports and weakening economic activity," said WTO Chief Economist Ralph Ossa.

"Moreover, tariffs are a policy lever with wide-ranging, often unintended consequences. In a world of growing trade tensions, a clear-eyed view of those trade-offs is more important than ever," he added.

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Services now account for 26.4% of global trade—the highest share since 2005—driven by digitalization and rising demand. In 2024, services trade grew 9% to $8.69 trillion, compared with a modest 2% rise in goods trade.