The World Trade Organization (WTO) has released a new forecast on the global outlook for trade, warning that the tariffs rolled out by the President Donald Trump administration have deteriorated global trade, and it warned that global trade volumes could shrink even further if suspended tariffs are reinstated.
In its report, trade in goods is expected to contract by 0.2%, which differs from its projection at the start of the year, when the WTO projected that trade would continue to grow, increasing by 2.7%. The new forecasts show a major drop from last year’s good trade, which grew by 2.9%.
North America is expected to experience a major decline in goods trade this year, with the forecast projecting a 12.6% decline.
The WTO added that there’s a risk that the decline will increase by 1.5% should the paused tariffs come back into action and the impact of the aftermath of uncertainty in trade policies.
Tariff decisions bring pain
Ngozi Okonjo-Iweala, WTO’s director general, shared her concerns on the matter, saying, “I am deeply concerned by the uncertainty surrounding trade policy, including the U.S.-China standoff.”
She pointed out that the paused tariffs helped to ease the pressure, but the uncertainty that comes with it threatens to hinder global growth, with severe negative consequences for the world, the most vulnerable economies in particular.
Okonjo-Iweala spoke on the long-established link between trade and economic expansion, noting that disruptions in global trade flow can spill over into financial markets and broader economic sectors. “We must ask ourselves: how do we safeguard the poorest countries from these shocks?” she added.
According to the WTO, this new estimate is based on measures put in place at the start of this week, which considers the tariffs already in operation and the ongoing 90-day suspension of reciprocal tariffs for select countries other than China. According to the report, the revised projection of a 0.2% contraction is nearly three percentage points lower than the organization’s “low tariff” baseline scenario, illustrating how significantly the global trade environment has shifted.
The U.S. and China make up the bulk of the global trade
Ralph Ossa, the WTO’s Chief Economist, told reporters that the ongoing trade dispute between China and the United States is expected to result in a “drastic contraction” in trade between the two economic giants. He also echoed the director general’s sentiments on the ripple effect it will have on other global markets.
The report also notes that the effects of recent trade policy shifts are likely to vary widely across regions. Asia and Europe are reportedly contributing positively to global trade, although their impact has diminished. For example, Asia’s contribution to global trade growth has been halved to 0.6 percentage points under current conditions.
Moreover, the change in U.S.-China trade is expected to trigger “significant trade diversion,” according to the WTO, raising concerns that third markets may face increased competition from Chinese exports seeking alternative destinations.
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