WTO Slashes 2025 Global Trade Forecast Amid Tariff Tensions and Policy Uncertainty

The WTO had previously expected steady growth in merchandise trade through 2025 and 2026, aligned with global GDP expansion.

The World Trade Organization (WTO) has delivered a sobering update on global trade prospects, sharply downgrading its forecast for 2025 in light of rising protectionism, ongoing US-China trade frictions, and widespread trade policy uncertainty. According to the WTO Secretariat’s Global Trade Outlook and Statistics report released on 16 April, the volume of world merchandise trade is now expected to decline by 0.2% in 2025. This figure represents a substantial downgrade—nearly three percentage points lower than earlier projections based on a "low tariff" baseline scenario.

The WTO’s updated projections are based on current trade measures in effect as of 14 April 2025. However, the organization warns that the situation could deteriorate further. If suspended “reciprocal tariffs” are reactivated by the United States and global trade tensions intensify, merchandise trade could shrink by as much as 1.5% in 2025.

Global Trade Takes a Hit from Protectionist Measures

The WTO had previously expected steady growth in merchandise trade through 2025 and 2026, aligned with global GDP expansion. However, a surge in new tariff measures introduced since the beginning of 2025 has prompted economists to reevaluate. The report underscores that tariffs and policy uncertainty are exerting a pronounced drag on trade volumes, prompting a reassessment of both merchandise and services trade trajectories.

WTO Director-General Ngozi Okonjo-Iweala emphasized the gravity of the situation:

“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. However, the enduring uncertainty threatens to act as a brake on global growth, with severe negative consequences for the world, particularly the most vulnerable economies.”

Okonjo-Iweala called on WTO members to take bold steps to revitalize the organization’s role in global trade governance, highlighting the need to streamline decision-making, create a more level playing field, and modernize trade agreements.

Risks Loom Large Over Trade Outlook

The WTO outlined several risk scenarios that could further depress trade. Chief among them is the reimplementation of suspended reciprocal tariffs by the United States. If these tariffs are reinstated, they could reduce global merchandise trade growth by 0.6 percentage points. Additionally, growing policy uncertainty could shave another 0.8 points off growth. Combined, these factors could lead to a 1.5% contraction in merchandise trade in 2025—an outcome explored in the report’s Analytical Chapter.

WTO Chief Economist Ralph Ossa emphasized the role of uncertainty as a key deterrent to global trade flows:

“Our simulations show that trade policy uncertainty has a significant dampening effect on trade flows, reducing exports and weakening economic activity. 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.”

Regional Trade Outlook: Diverging Paths

The WTO’s regional trade forecasts for 2025 show stark differences in performance.

North America is projected to see the most severe contraction, with exports expected to plummet by 12.6% and imports falling by 9.6%. This decline will subtract 1.7 percentage points from global merchandise trade growth, single-handedly turning global growth into negative territory.

Asia, by contrast, is expected to show moderate resilience, with both exports and imports projected to rise by 1.6%. Europe will also see modest gains, with exports growing by 1.0% and imports by 1.9%. While these figures are far below the growth expected under a low-tariff baseline, they represent positive contributions to world trade under current conditions.

Other regions—including parts of the Middle East, Africa, and South America—are expected to maintain positive trade contributions, bolstered by demand for energy and resource-based commodities, which tend to remain stable despite economic fluctuations.

The US-China trade conflict remains a central factor in global trade dynamics. With trade between the two giants disrupted, significant trade diversion is expected. Chinese exports are forecast to rise between 4% and 9% to all regions outside North America, while US imports from China in sectors like textiles, apparel, and electrical equipment are expected to fall. This creates new opportunities for third countries that can step in to supply these products.

Least-Developed Countries: Between Threat and Opportunity

Export-oriented least-developed countries (LDCs) remain especially vulnerable. Many LDCs rely heavily on a narrow range of export products and lack the financial and institutional resilience to weather major trade shocks. However, the current pause on US reciprocal tariffs presents a short-term opportunity. Because many LDCs have export structures similar to China’s—particularly in textiles and electronics—they could benefit from trade diversion as global buyers seek alternative suppliers.

Commercial Services: Growth Slows but Remains Positive

Although not directly affected by tariffs, commercial services trade is also expected to slow due to the broader economic uncertainty. Global services trade is projected to grow by 4.0% in 2025, down from 9% growth in both 2023 and 2024.

In 2024, services made up 26.4% of global trade (based on balance of payments statistics), the highest share since 2005. Total global services trade reached US$8.69 trillion in 2024, thanks to increased digitalization and rising demand for intangible services.

However, the knock-on effects of weaker goods trade are set to impact related services, such as transport, freight, and logistics, especially in ports and airports. International travel, particularly tourism, is expected to suffer from reduced consumer spending amid economic headwinds. Similarly, professional, research, and IT services—often tied to manufacturing and product development—are forecast to weaken.

Regional Services Trade Forecasts

The WTO projects uneven growth across regions for services in 2025:

• Europe: Services exports expected to grow by 5.0%, continuing with 4.4% growth in 2026.

• Asia: Forecast to expand services exports by 4.4% in 2025 and 5.1% in 2026.

• North America: Growth slows to 1.6% in 2025, recovering slightly to 2.3% in 2026.

• Middle East: Modest growth of 1.7% in 2025, falling to 1.0% in 2026.

• CIS (Commonwealth of Independent States): Projected to grow by 1.1% in 2025 and 3.5% in 2026.

• Africa, South and Central America, and the Caribbean: Services exports are expected to decline in 2025, with only modest recovery potential in subsequent years.

A Critical Juncture for Global Trade

The WTO's revised outlook underscores that the world stands at a pivotal moment for trade. The combination of increased tariffs, growing geopolitical tensions, and widespread policy unpredictability is stifling the global flow of goods and services. While some regions and sectors may find opportunities amid the shifting trade landscape, the net effect is a drag on growth and a source of vulnerability for the world’s most fragile economies.

The report calls for renewed international cooperation and policy clarity to stabilize the trade environment and support a more inclusive global recovery. Without such efforts, the WTO warns, the gains from decades of globalization risk being eroded, with far-reaching consequences for global economic stability.