The World Trade Organization (WTO) has revised its global trade forecast for 2025, signaling a major slowdown due to an uptick in tariffs and mounting trade policy uncertainty (TPU). Originally projected to see continued growth, the WTO now expects global merchandise trade to contract by 0.2% in 2025, a dramatic shift from previous predictions that anticipated trade expansion. The outlook includes a modest recovery of 2.5% in 2026, but the overall sentiment remains bleak as the global trading system struggles to adapt to rising geopolitical tensions and the unpredictable nature of new trade restrictions.

Risks to Global Trade Growth

The revised forecast comes as a result of increasing tariff measures and the suspension of "reciprocal tariffs" by the United States. These tariffs had been a significant factor in the previous trade landscape, and their potential reinstatement is now considered one of the largest risks to the forecast. If the U.S. moves forward with enacting these tariffs, global merchandise trade could decline by an additional 0.6 percentage points in 2025. The ripple effects of these tariffs are expected to disproportionately affect least-developed countries (LDCs), with the potential to reduce trade volumes by 1.5% globally.

"While the global trade system was on track for growth earlier this year, recent policy shifts have drastically altered the outlook," said Ralph Ossa, WTO Chief Economist. "If the reciprocal tariffs are fully reinstated, we face an even steeper decline in trade volume than currently anticipated."

Regional Impacts and Diverging Trade Flows

The impact of these policy changes varies significantly across different regions. North America, traditionally a strong contributor to global trade, is now expected to subtract 1.7 percentage points from world merchandise trade growth in 2025. This marks a stark contrast to the previously expected positive contribution. The decline in North American trade is primarily attributed to the U.S.-China tensions and the broader repercussions of tariff impositions.

In contrast, Asia and Europe are expected to continue contributing positively, but their influence on global trade growth has been significantly reduced. Asia’s contribution has been halved to 0.6 percentage points, down from 1.2 in earlier projections. Europe’s role remains somewhat stable, though its positive impact is now smaller than originally forecast.

“While Asia and Europe are still contributing positively, their impact on global trade growth is now significantly diminished,” added Ossa.

For some regions, such as LDCs, the changes in trade flows could bring new opportunities. As U.S.-China trade diversion continues, countries in Africa and Asia with export structures similar to China’s, such as those involved in textiles and electronics, could seize the opportunity to increase exports to markets previously dominated by Chinese suppliers. This trade diversion might open doors for LDCs to expand their exports, particularly in textiles and related goods.

Services Trade: A New Challenge Amid Uncertainty

While services trade is not directly subject to tariffs, it is not immune to the broader economic slowdown. The WTO has forecasted that global services trade will grow by 4.0% in 2025, a marked slowdown from the 6.8% growth seen in 2024. This decline is largely attributed to the knock-on effects of weaker merchandise trade, which in turn dampens demand for associated services such as transport, logistics, and business services.

The volume of global services trade, which includes sectors such as tourism, transport, and financial services, is forecast to remain subdued in 2025, with travel and transport services particularly vulnerable to declines in discretionary spending and economic uncertainty. “Travel and transport services, being highly sensitive to economic conditions, will face continued challenges,” said Ossa. “The growth of the services sector, which has been a major contributor to global trade, is now forecast to slow significantly.”

The Global Economy in Transition: Trade and GDP Outlook

Despite the uncertainty surrounding trade, the global economy showed resilience in 2024. World merchandise trade grew by 2.9% in 2024, supported by strong performance from Asia, while services trade expanded by 6.8%. Global GDP grew by 2.8%, marking the first time since 2017 (excluding the pandemic rebound) that merchandise trade outpaced global output growth.

However, the downturn in the global trade outlook for 2025 highlights the vulnerability of the economy in an era of heightened tariff measures and trade policy uncertainty. The WTO economists have lowered their forecast for world GDP growth in 2025 to 2.2%, 0.6 percentage points below the previous baseline projections. This downward revision reflects the expected drag from tariffs and trade restrictions, particularly in North America and Asia.

Trade Policy Uncertainty: A Growing Threat to Economic Stability

The key driver behind the revised forecast is the increasing trade policy uncertainty that has accompanied recent tariff changes. WTO economists emphasize that uncertainty acts as both a direct cost to trade and a broader negative influence on global economic stability. Uncertainty makes it harder for businesses to plan investments, affecting everything from manufacturing to international shipping.

The WTO’s analysis shows that if trade policy uncertainty continues to spread across different global regions, it could further undermine economic stability. Retailers, manufacturers, and service providers are already grappling with these challenges, which is expected to curb investment in the global economy.

“We are in an era of unpredictability where trade policy shifts are frequent and rapid. The uncertainty makes it hard for businesses to make long-term decisions, affecting both trade and investment,” said Ossa.

What Lies Ahead: Potential for Recovery?

Looking ahead, the WTO remains cautiously optimistic that a modest recovery in global trade is possible, particularly in 2026. As global GDP growth is expected to slightly improve to 2.4% in 2026, there is potential for a recovery in world trade, provided that trade policies stabilize and uncertainties are reduced. A return to pre-2025 trade conditions, however, seems unlikely in the short term.

However, the WTO's analysis also underscores the necessity of cooperative trade policy to avoid the dangers of escalating tariffs and trade wars. "If the global trading system is to recover, a return to predictable and cooperative trade practices is essential," Ossa concluded.

In conclusion, the global trade landscape in 2025 presents a stark contrast to the optimism of previous years. With geopolitical tensions, tariff increases, and trade policy uncertainty at an all-time high, businesses and policymakers must brace for a turbulent year. As the WTO forecasts, while a recovery is possible, the path ahead for global trade remains fraught with challenges.