The World Trade Organization (WTO) has issued a forecast indicating that global trade is expected to contract in 2025, largely as a result of tariffs imposed by the United States under President Donald Trump's administration. The organisation warned of "severe downside risks," including the possibility of reciprocal tariffs and heightened political uncertainty, which could precipitate an even more pronounced decline in global goods trade.
According to the WTO, the decline is predicted to be especially significant in North America, where trade is expected to drop by more than 10%. This represents a marked shift from the organisation's previous projection, which anticipated a 2.7% growth in global goods trade for 2025. The new forecast now suggests a slight contraction of 0.2% for the year.
Ngozi Ikonjo Iweala, the Director-General of the WTO, expressed concern over the "decoupling" of the US and China economies, describing it as "a phenomenon that is really worrying to me." This reflects growing anxiety about the long-term implications of trade barriers between two of the world's largest economies.
The WTO’s Chief Economist, Ralph Ossa, explained the broader impact of tariffs on international commerce, stating, "Tariffs are a policy lever with wide-ranging, and often unintended consequences." He further noted, "Our simulations show that trade policy uncertainty has a significant dampening effect on trade flows, reducing exports and weakening economic activity."
The tariffs in question include a baseline 10% levy on almost all foreign imports to the United States, which was introduced on 5 April. While some countries and products remain exempt from this tax, China's tariffs are considerably higher, collectively amounting to 145%. These measures have contributed to volatility in US stock markets, with major indices declining amid ongoing uncertainty over trade policies.
While trade with the US is expected to contract, the WTO predicts that other regions such as Asia and Europe will continue to experience modest growth in both exports and imports throughout 2025. The report highlights that the "collective contribution to world trade growth of other regions would also remain positive," indicating a divergence in global trading activity.
Notably, the WTO’s latest report includes a forecast for services trade for the first time. Services trade involves transactions where countries exchange services instead of goods, which is common in sectors like tourism and finance. The WTO estimates that services trade will grow by 4% in 2025, although this growth rate is approximately one percentage point lower than earlier expectations.
These developments underscore the complexities facing the global trading system as nations grapple with emerging protectionist measures and shifting geopolitical dynamics.
Source: Noah Wire Services