The World Trade Organisation (WTO) has warned that the volume of world merchandise trade could shrink as much as 1.5% this year, shaving off billions from the global economic growth as a result of the United States’ trade war with China.
In its April Global Trade Outlook and Statistics report published on Wednesday, the WTO Secretariat said the outlook for global trade has deteriorated sharply due to a surge in tariffs and trade policy uncertainty (TPU).
This comes after US President Donald Trump on 2 April announced a two-tier tariff structure: a baseline 10% tariff applied universally to imports from all countries with the exception of Canada and Mexico, and additional country-specific "reciprocal" tariffs based on what the administration deemed unfair trade practices by approximately 60 individual nations.
However, Trump authorized a 90-day pause on the implementation of most tariffs a week later, reverting to a universal rate of 10% on almost all targeted countries, while raising tariffs on most goods from China to 145%.
In the best case scenario prompted by the suspension of “reciprocal tariffs” by the US, the WTO said the volume of world merchandise trade was now expected to decline by 0.2% in 2025 before posting a modest recovery of 2.5% in 2026.
The new estimate for 2025 is nearly three percentage points lower than it would have been without recent policy shifts, and marks a significant reversal from the start of the year when WTO economists expected to see continued trade expansion supported by improving macroeconomic conditions.
However, the WTO said severe downside risks existed, including the application of “reciprocal” tariffs and broader spillover of policy uncertainty, which could lead to an even sharper decline of 1.5% in global goods trade and hurt export-oriented least-developed countries.
The WTO said that 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.
WTO director-general Ngozi Okonjo-Iweala expressed a pressing concern for global trade dynamics and the far-reaching implications for the world's most vulnerable economies.
“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,” she said.
“However, 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.”
The US dollar value of world merchandise exports in 2024 increased by 2% to $24.43 trillion, including trade within the European Union. China was the largest exporter ($3.58trln) while the US remained the largest importer ($3.36trln).
At the start of the year, the WTO Secretariat expected to see continued expansion of world trade in 2025 and 2026, with merchandise trade growing in line with world GDP and commercial services trade increasing at a faster pace.
However, the large number of new tariffs introduced since January prompted WTO economists to reassess the trade situation, resulting in a substantial downgrade to their forecast for merchandise trade and a smaller reduction in their outlook for services trade.
“Our simulations show that trade policy uncertainty has a significant dampening effect on trade flows, reducing exports and weakening economic activity,” WTO chief economist Ralph Ossa said.
“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.”
Nedbank economists on Wednesday said the US trade war will hurt global trade volumes, disrupt supply chains, reorganise and shift production, and weigh on most countries' export volumes either directly through their exposure to the US market or indirectly through generally weaker global demand.
“Consequently, global growth is expected to slow in 2025, probably sliding to well below 3%. Emerging markets are more exposed than advanced countries, ”they said.
“Goods exports account for the bulk of total exports and a sizeable slice of GDP in most developing economies. These countries will feel the impact through slower global growth, renewed setbacks in China and falling commodity prices.”
Meanwhile, Moody’s Investor Services in a report on tariffs and trade turmoil on Wednesday said its ratings and outlooks will be impacted by the credit issuers whose trade, weakening confidence and macroeconomic conditions, and financial markets will be affected by the application of tariffs.
“Issuers whose revenue and profits are materially dependent on sales of tariffed goods into the US market are the most immediately affected,” Moody's said.
“Such companies will likely pass some of the cost of tariffs to customers via higher prices, and absorb the rest through lower profit margins to reduce the impact on sales. There will likely also be ripple effects if barriers to exports into the US from China result in oversupply and price deflation to other markets.”
BUSINESS REPORT