WTO Expects Tariffs to Shake Up Global Trade

Amid the flurry of tariff announcements, suspensions, exceptions and negotiations of the past few weeks, the World Trade Organization published its latest Global Trade Outlook, trying to accomplish the near-impossible task of predicting the trajectory of world trade during this period of uncertainty.

To avoid having to hit a moving target, the WTO compared two scenarios for its latest forecast: a baseline scenario assuming a continuation of the previous low tariff environment and relatively low trade uncertainty and a tariff scenario reflecting measures in place as of April 14, including the suspension of reciprocal tariffs, which took some of the sting out of the Trump administration’s tariff offensive. Still, even under these conditions, the WTO expects the volume of global merchandise trade to decline by 0.2 percent this year, reflecting a 2.9 percentage-point reduction compared to the baseline scenario, under which world trade was forecast to grow 2.7 percent this year. If reciprocal tariffs are resumed and uncertainty spreads further, global trade could shrink even more than that, the WTO warns, with the worst-case scenario projecting a 1.6 percent decline in global trade volume in 2025.

“I am deeply concerned by the uncertainty surrounding trade policy, including the U.S.-China stand-off,” WTO Director-General Ngozi Okonjo-Iweala said. “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.” The organization downgraded its global GDP growth forecast for 2025 from 2.8 percent to 2.2 percent, as tariffs are expected to reduce exports and weaken economic activity.

Unsurprisingly, the U.S. tariffs are expected to have the largest impact on trade involving the United States, which is why the WTO’s regional forecast for North America shows by far the largest discrepancy between the baseline and the tariff scenario. Instead of 2.2 and 2.8 percent growth in exports from and imports to North America, the organization now expects exports to drop 12.6 percent this year and imports to decline by 9.6 percent.

With China the focal point of Trump’s trade war, Asia is expected to see the second largest impact of the new tariffs, as im- and exports of the region are now projected to grow 1.6 percent in 2025 instead of 3.2 and 3.3 percent, respectively. U.S. imports from China could plummet by as much as 77 percent, the WTO warns, as the world’s two largest economies are currently on collision course. This will likely divert Chinese exports to third countries, where other producers will in turn face more competition from China.