The ongoing trade friction between the US and China is expected to trigger substantial trade diversion. The WTO anticipates Chinese merchandise exports to increase by 4% to 9% across all regions except North America as trade flows are redirected.
R. Suryamurthy
The World Trade Organization (WTO) has issued a sharply downgraded forecast for global trade in 2025, citing a surge in tariffs and pervasive trade policy uncertainty. According to the WTO’s latest report, the volume of world merchandise trade is now projected to decline by 0.2% in 2025, a dramatic reversal from earlier expectations of continued expansion. A modest recovery of 2.5% is anticipated for 2026.
The WTO report attributes this downturn to recent trade policy shifts, with the 2025 estimate nearly three percentage points lower than it would have been without the new tariffs and uncertainties. WTO economists had initially foreseen trade growth fueled by improving macroeconomic conditions at the start of the year.
The forecast remains vulnerable to further disruptions. Specifically, the potential re-implementation of suspended “reciprocal tariffs” by the United States poses a significant risk. The WTO warns that if these tariffs are enacted, global merchandise trade growth could be further reduced by 0.6 percentage points, with particularly severe consequences for least-developed countries (LDCs). Moreover, the report highlights the danger of a broader spread of trade policy uncertainty beyond US-linked relationships, which could shave off an additional 0.8 percentage points. Combined, these factors could lead to a 1.5% contraction in world merchandise trade volume in 2025.
The impact of these trade policy changes is unevenly distributed across the globe. North America is projected to be hit hardest, with the adjusted forecast indicating a 1.7 percentage point drag on global merchandise trade growth in 2025, pushing the region into negative territory. While Asia and Europe are expected to continue contributing positively to global trade, their contributions are diminished compared to previous estimates. Asia’s contribution, in particular, is halved to 0.6 percentage points. Other regions, including Africa, the Commonwealth of Independent States (CIS), the Middle East, and South and Central America and the Caribbean, will also see a decline in their contributions, though they remain positive overall.
The ongoing trade friction between the US and China is expected to trigger substantial trade diversion. The WTO anticipates Chinese merchandise exports to increase by 4% to 9% across all regions except North America as trade flows are redirected. Conversely, US imports from China are expected to decline significantly in sectors like textiles, apparel, and electrical equipment. This shift could create new export opportunities for other countries, potentially benefiting some LDCs seeking to fill the void in the US market.
Beyond merchandise trade, the WTO also projects negative consequences for services trade. While not directly subject to tariffs, the decline in goods trade is expected to weaken demand for related services such as transport and logistics. Furthermore, increased uncertainty is likely to dampen discretionary spending on travel and slow down investment-related services. Consequently, the global volume of commercial services trade is now forecast to grow at 4.0% in 2025 and 4.1% in 2026, down from baseline projections of 5.1% and 4.8%. Notably, this report marks the first time the WTO has included projections for commercial services trade alongside its merchandise trade estimates.
The WTO economists also revised their outlook for global GDP growth. World GDP at market exchange rates is now projected to grow by 2.2% in 2025, a 0.6 percentage point reduction from the no-tariff-change baseline, with a slight recovery to 2.4% in 2026. The impact of tariff changes is expected to be most pronounced in North America (a 1.6 percentage point reduction), followed by Asia (0.4 points) and South and Central America and the Caribbean (0.2 points). While the immediate effect of reciprocal tariffs on global GDP is seen as limited, a wider spread of trade policy uncertainty could nearly double the GDP loss to 1.3 percentage points compared to the baseline.
Despite the grim outlook for 2025, the WTO report notes a strong performance in 2024. The volume of world merchandise trade grew by 2.9% in 2024, and commercial services trade expanded by 6.8%. Global GDP rose by 2.8%, marking the first year since 2017 (excluding the post-pandemic rebound) that merchandise trade growth outpaced output. In value terms, world merchandise exports increased by 2% to US$ 24.43 trillion, while commercial services exports rose by 9% to US$ 8.69 trillion.