Temporary tariff pause mitigates trade contraction, but strong downside risks persist

The volume of world merchandise trade is expected to decline by 0.2% in 2025 under current conditions, nearly three percentage points lower than what would have been expected under a "low tariff" baseline scenario, according to the WTO Secretariat's latest Global Trade Outlook and Statistics report released on 16 April.  This is premised on the tariff situation as of 14 April. Trade could shrink even further, to -1.5% in 2025, if the situation deteriorates.

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%, slower than expected.

Director-General Ngozi Okonjo-Iweala said: "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. In the face of this crisis, WTO members have the unprecedented opportunity to inject dynamism into the organization, foster a level-playing field, streamline decision-making, and adapt our agreements to better meet today's global realities."

At the start of the year, the WTO Secretariat expected to see continued expansion of world trade in 2025 and 2026, with merchandise trade growing in line with world GDP and commercial services trade increasing at a faster pace. However, the large number of new tariffs introduced since January prompted WTO economists to reassess the trade situation, resulting in a substantial downgrade to their forecast for merchandise trade and a smaller reduction in their outlook for services trade.

Risks to the forecast

Risks to the merchandise trade forecast persist, particularly from the reactivation of the suspended "reciprocal tariffs" by the United States, as well as the spread of trade policy uncertainty that could impact non-US trade relationships. 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. These scenarios are explored in detail in the Analytical Chapter of the report. Risks to services trade related to the escalation in trade tensions are not currently captured in the forecast.

"Our simulations show that trade policy uncertainty has a significant dampening effect on trade flows, reducing exports and weakening economic activity," WTO Chief Economist Ralph Ossa said. "Moreover, tariffs are a policy lever with wide-ranging, and often unintended consequences. In a world of growing trade tensions, a clear-eyed view of those trade-offs is more important than ever.”

Regional goods trade forecasts

The latest forecast marks a reversal from 2024, when the volume of world merchandise trade grew 2.9%, while GDP expanded by 2.8%, making 2024 the first year since 2017 (excluding the rebound from the COVID-19 pandemic) where merchandise trade grew faster than output.

In 2025, the impact of recent tariff measures on merchandise trade is expected to differ sharply across regions.

Under the current policy landscape, North America is expected to see a 12.6% decline in exports and 9.6% drop in imports in 2025. The region's performance would subtract 1.7 percentage points from world merchandise trade growth in 2025, turning the overall figure negative. Asia is projected to post modest growth in both exports and imports this year (1.6% for both), along with Europe (1.0% export growth, 1.9% import growth). Both regions' contributions to world trade growth would remain positive under current policies, albeit smaller than in the baseline low tariff scenario. The collective contribution to world trade growth of other regions would also remain positive, in part due to their importance as producers of energy products, demand for which tends to be stable over the global business cycle.

The disruption in US-China trade is expected to trigger significant trade diversion, raising concerns among third markets about increased competition from China. Chinese merchandise exports are projected to rise by 4% to 9% across all regions outside North America, as trade is redirected. At the same time, US imports from China are expected to fall sharply in sectors such as textiles, apparel, and electrical equipment, creating new export opportunities for other suppliers able to fill the gap.

Additionally, the reinstatement of US tariffs could have severe repercussions for export-oriented least-developed countries (LDCs) whose economies are particularly sensitive to external economic shocks due to their concentration of trade on a small number of products as well as their limited resources to deal with setbacks. Under the current situation with the pause on US' "reciprocal" tariffs, LDCs may benefit from trade diversion as their export structure is similar to China's, especially in textiles and electronics.

Commercial services trade

In 2024, services accounted for 26.4% of global trade based on balance of payments statistics, the highest share since 2005. Rising demand for services and advances in digitalization have helped expand the contribution of services to global trade. In 2024, services trade totalled US$ 8.69 trillion, increasing by 9% and mirroring the growth registered in 2023. This is in sharp contrast to goods trade, which rose by only 2% in value terms in 2024.

Although the high tariffs are limited to goods, their effects are expected to ripple across the broader economy, including on services trade.

High tariffs will directly affect the volume of goods traded, leading to weaker demand for freight shipping and logistics services in ports and airports, which account for the bulk of overall transport. International travel, particularly leisure travel, may be the first sector impacted by economic uncertainty, as discretionary spending on trips and accommodations can easily be curtailed. Furthermore, various intermediate services supporting goods trade and other services such as professional, research and development, and information technology services, will likely face declining demand in the current economic climate.

Most services growth in 2025 will originate from Europe, where exports are expected to grow by 5.0% under current policies. European growth will continue at 4.4% in 2026. Asian economies' services exports are projected to increase by 4.4% in 2025 and by 5.1% in 2026. Growth in services exports of North America will slow to 1.6% in 2025 but then accelerate to 2.3% in 2026. For the Middle East, services exports are expected to grow by 1.7% in 2025 and 1.0% in 2026. In the Commonwealth of Independent States (CIS), growth of 1.1% in 2025 and of 3.5% in 2026 is anticipated. The outlook for 2025 is subdued for Africa and for South and Central America and the Caribbean, both of which are expected to record declines in 2025.

The full report is available here.

Detailed annual, quarterly and monthly trade statistics can be downloaded from the WTO Stats portal. Our interactive user-friendly tools are also available for a more in-depth look at the data: WTO World Trade Statistics, Key Insights and Trends in 2024 and WTO Global Services Trade Data Hub.

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