Global trade is set to contract 0.2 percent in 2025, World Trade Organisation (WTO) noted in its Global Trade Outlook and Statistics released on April 16.
The latest forecast is over 3 percentage point lower than low-tariff scenario and could worsen to 4.5 percentage point drop if situation worsens and the trade war escalates.
A resumption of reciprocal tariffs would see merchandise trade growth contracting 1.5 percent.
"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. 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," said WTO Director-General Ngozi Okonjo-Iweala.
US has imposed 145 percent reciprocal tariffs on China, while the Asian country has responded with 125 percent retaliatory duties. The US President on April 2 announced country wise reciprocal duties, but paused the order for 90 days.
The lower than expected trade is also expected to put a dent in global growth, as the economy stares at 2.2 percent growth in 2025, its lowest level since the pandemic.
The 2.2 percent growth forecast for 2025 is 0.6 percentage points or 60 bps lower than earlier estimate.
2026 is likely to see some recovery with growth rising to 2.4 percent.
"Our simulations show that trade policy uncertainty has a significant dampening effect on trade flows, reducing exports and weakening economic activity," said WTO Chief Economist Ralph Ossa.
The report noted that the impact of trade tensions would be most visible on North America, which would see exports slip 12.6 percent and imports drop 9.6 percent.
"Asia is projected to post modest growth in both exports and imports this year (1.6 percent for both), along with Europe (1.0 percent export growth, 1.9 percent import growth)," the report stated.
Chinese merchandise exports to other regions are expected to rise by 4-9 percent.
The impact of trade would also be felt on commercial services, where India is emerging as a major player.
"Services trade, though not directly subject to tariffs, is also expected to be adversely affected, with the global volume of commercial services trade now forecast to grow by 4.0 percent, slower than expected," WTO noted.
UNCTAD forecast released on April 16 noted that global growth is expected to slow to 2.3 percent in 2025, pegging India’s growth at 6.5 percent.
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