New Delhi: Donald Trump’s tariffs, as of April 14, will force a 0.2% contraction by volume in global trade in 2025, the latest Global Trade Outlook released by the World Trade Organisation on 16 April, said, contrasting this with the 2.7% growth that it would have otherwise seen.
And if he were to bring back his paused tariffs, which would also increase trade policy uncertainty, the contraction could be much larger. The economic disruption unleashed by Trump tariffs is likely to lead to a global growth loss of 0.6 percentage points. World GDP is now expected to grow at 2.2% instead of the baseline 2.8% in 2025, WTO said.
While Trump’s trade war with China might present export opportunities for some countries, most of the world will also have to deal with a surge of exports from China and adverse second-order effects of increased policy uncertainty generating headwinds for things such as friend-shoring, the outlook added.
Global trade prospects have fallen off a cliff between 2024 and 2025. 2024 was the first year since 2017 (excluding the pandemic rebound) when global trade (2.9%) grew at a faster rate than global GDP (2.8%). Global trade will now contract by 0.2% in 2025 even as the world grows at a slower pace of 2.2%.
To be sure, the trade forecasts released by the WTO are tentative given the volatile situation. “Unprecedented nature of the recent shift in trade policy poses a challenge for economic forecasters since there has been no directly comparable event in recent history”, the WTO report said. Things could get worse if Trump were to revive his as-of-now paused reciprocal tariffs and trade policy uncertainty were to worsen. “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. Together, reciprocal tariffs and spreading trade policy uncertainty would lead to a 1.5% decline in world merchandise trade in 2025”, the report says.
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As is to be expected, not everyone will suffer the same disruption to trade because of Trump’s tariffs. WTO’s latest forecasts expect North America to be the biggest negative drag (1.7 percentage points) on global trade growth and continue to weigh on its recovery even in 2026. Asia’s contribution to global trade growth is expected to halve (1.2 percentage point to 0.6 percentage point) between in the baseline (no tariff) and current scenario. Region-wise trade growth estimates show that North America’s exports and imports will now contract by 12.6% and 9.6% instead of a 2.2% and 2.8% growth in the baseline scenario. For Asia, the export and import growth numbers are expected to change from 3.3% to 1.6% and 3.2% to 1.6% respectively between the baseline and revised scenarios. North America’s GDP growth (at market exchange rates) is expected to fall from a baseline of 2% to 0.4% in 2025. For Asia this number will come down from 4.1% to 3.7%.
While the ongoing trade war is currently confined to merchandise trade, WTO also expects headwinds to service trade growth, partly because of their integration with goods trade (for services such as transport and logistics) and partly because of greater uncertainty (things such as tourism). Commercial trade in services is expected to slow from a baseline projection of 5.1% and 4.8% in 2025 and 2026 to 4% and 4.1%. While transport and travel are likely to take the biggest hits, even other services, including digitally delivered services (India is a major player here) will suffer a slowdown from a baseline 6.6% to 5.6%.
Will the ongoing trade war between US and China lead to redirection of trade? WTO expects this to happen and also predicts that the realignment could open up some opportunities for Less Developed Countries to substitute some of China’s exports to the US. However, most countries will also have to deal with a surge of Chinese imports as they lose their US markets. While Asia excluding China — the WTO report does not give a country-wise breakup — is expected to see a 2% increase in its exports to the US, it will also face a 6% increase in its imports from China. China is expected to face a 77% fall in its exports to the US because of the latest Trump tariffs.
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The report also sounds a warning on the second order effects of a trade war between the world’s largest economies. “There is a risk that the tit-for-tat tariff increases between the two biggest economies of the world could spread. Simulations of the long-term repercussions suggest that the economic costs of a split into two blocs would be substantial. An increase of 100% in tariff rates between two hypothetical geoeconomic blocs, combined with more trade policy uncertainty and higher non-tariff barriers, is projected to reduce global real GDP by almost 7% in the long run (by 2040). Low-income economies would lose out the most in such a scenario, with losses of more than 9 per cent”, it said.
Another adverse effect, particularly for India, of the rising trade tensions could be a loss of momentum for the practice of friend-shoring due to rise and spread in global uncertainty. India was expected to be a major beneficiary of the China+1 sentiment with companies relocating capacity to countries other than China to export to open markets such as the US.
