WTO warns of economic turbulence ahead, slashes global trade forecast figures

The World Trade Organization has slashed its forecast for global trade this year amid the turbulence over the sharp spike in US tariffs and consequent uncertainty that has battered market sentiments and stock indices.

The latest Global Trade Outlook released by the World Trade Organization on April 16 says US President Donald Trump’s tariffs will force a 0.2% contraction by volume in global trade in 2025, instead of the 2.7% growth that was projected otherwise.
The Geneva-based WTO further warns that if Trump lifts the pause on his earlier announced reciprocal tariffs, it would amplify the problems, and the contraction could be even much bigger. 

“Together, reciprocal tariffs and spreading trade policy uncertainty would lead to a 1.5% decline in world merchandise trade in 2025,” the WTO said in its report Wednesday.
North American trade will be hardest hit, while Asia and Europe will see a modest rise in growth, it added.

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The economic disruption unleashed by Trump tariffs is likely to lead to a global growth loss of 0.6 percentage points. World GDP is now expected to grow at 2.2% instead of the baseline 2.8% in 2025, the WTO said.

“The disruption in US-China trade is expected to trigger significant trade diversion, raising concerns among third markets about increased competition from China,” the WTO outlook added.
“Unprecedented nature of the recent shift in trade policy poses a challenge for economic forecasters since there has been no directly comparable event in recent history,” the report said.

The ramifications are likely to be far and wide. 2024 was the first year since 2017 (excluding the pandemic rebound) when global trade (2.9%) grew at a faster rate than global GDP (2.8%). Now, global trade will shrink by 0.2% in 2025, and the world will grow slower at 2.2%.

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The trade forecasts released by the WTO are deemed highly tentative given the volatile situation.

“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, they would lead to a 1.5% decline in world merchandise trade in 2025,” the report says.

However, not everyone will suffer the same disruption because of Trump’s tariffs. The WTO expects North America to be the biggest negative drag (1.7 percentage points), while Asia’s contribution to global trade growth is expected to halve to 0.6 percentage points.
Services trade will also be hurt. The WTO now sees commercial services growing by 4% this year, compared to 6.8% last year.

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The global trade realignment could open up some opportunities for Less Developed Countries to substitute some of China’s exports to the US, but they will also have to deal with a surge of Chinese imports.
China is expected to face a 77% fall in its exports to the US because of Trump tariffs.

“There is a risk that the tit-for-tat tariff increases between the two biggest economies of the world could spread. The economic costs of a split into two blocs would be substantial,” it said.