WTO slashes 2025 trade growth forecast, warns of deeper slump

New Delhi: Tariff war unleashed by US President Donald Trump is likely to badly hit the global trade leading to a contraction of 0.2 per cent in cross border shipments in 2025 when compared with the previous year due to a sharp drop in both exports and imports in the North American countries, the World Trade Organisation (WTO) said on Wednesday.

WTO’s latest forecast on global trade is nearly three percentage points lower than its earlier estimate. In October last year, the WTO had pegged the 2025 global trade growth at 3 per cent.

In its latest Global Trade Outlook and Statistics report, the WTO noted that 0.2 per cent contraction is estimated based on the current tariff situation. “This is premised on the tariff situation as of April 14. Trade could shrink even further, to -1.5 per cent in 2025, if the situation deteriorates,” the WTO said.

Earlier this month US President Trump unleashed a trade war by announcing imposition of high tariffs on imports from 60 countries, including India and China. Later the US government announced a 90-day pause on the tariffs, except on China.

While India has sought to engage with the Trump administration by lowering duties on some products and pushing forward for a bilateral trade agreement, China has adopted a confrontationist approach by announcing retaliatory tariffs.

The latest escalation in tariff war came on Tuesday evening when the Trump administration announced imposition of 245 per cent tariffs on Chinese goods.

"I am deeply concerned by the uncertainty surrounding trade policy, including the US-China stand-off," WTO Director-General Ngozi Okonjo-Iweala said in a statement.

The WTO said the temporary tariff pause mitigates trade contraction, but strong downside risks persist.

"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," Okonjo-Iweala said.

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

The WTO has lowered global GDP growth projection to 2.2 per cent from its earlier estimate of 2.8 per cent. For 2026, the global GDP growth projection has been cut to 2.4 per cent from 2.6 per cent.

Under the current policy landscape, North America is expected to see a 12.6 per cent decline in exports and 9.6 per cent drop in imports in 2025. Asia is projected to post modest growth in both exports and imports this year (1.6 per cent for both), along with Europe (1.0 per cent export growth, 1.9 per cent 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 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 per cent to 9 per cent across all regions outside North America, the WTO said.