Tariffs, trade tensions, and trade uncertainty have caused a trio of global economic bodies – the WTO, UNCTAD, and the IMF, to sound the economic alarm bells.
Incidentally, bear in mind that the analysis presented below from the WTO, UNCTAD, and the IMF was all modelled prior to statements from the US that the Chinese tariffs are unsustainable and will need to be reduced, that there will be a de-escalation in the trade war. You can read more about the statements made earlier (see the US PBS) and here from Australia’s ABC.
WTO warns of three percentage point fall goods trade
Trade policy upsets have caused the World Trade Organization to slash its trade growth forecast from +2.9% to -0.2%… that’s a staggering fall of just over three percentage points. WTO economists had previously expected to see continued growth in world trade both this year and next, the new forecast is a swing from strongly positive growth to a negative.
Noting that “there has been no directly comparable event in recent history,” WTO economists added that merchandise trade growth could have been as high as 2.7% in 2025 and 2.9%. Tariffs and trade policy uncertainty are the root cause of the forecast decline as the high growth scenario was forecast if tariffs and trade uncertainty had stayed low.
Merchandise goods trade is the movement of all goods that cross a border and that also form part of the stock of goods in that country. Goods in transit (e.g. goods being trans-shipped) or which are temporarily in-country (e.g. goods used to put on a temporary performance such as music concert) are not included.
It gets worse. Noting that the risks to the forecast include the implementation of the “currently suspended” reciprocal tariffs by the United States, the WTO pointed out to a broader spillover in trade policy. World goods trade would fall by a further 0.6 percentage points if the reciprocal tariffs are actually implemented and if trade policy uncertainty spreads, then that would knock off a further 0.8 percentage points.
“Taken together, the reciprocal tariffs and spreading [trade policy uncertainty] would lead to a 1.5% decline in world trade volume in 2025,” the WTO warns.
WTO foresees regional variations
Different parts of the world will likely have markedly different experiences, the WTO indicates.
North America will loose about 1.7 percentage points from global merchandise trade growth, whereas Asia and Europe both continue to contribute positively albeit at a lower level. Asia’s contribution will be halved to 0.6 percentage points. Much of the rest of the world, Africa, the Middle East, South and Central America, and others, will also decline but will stay in positive numbers. US-China is forecast to experience “significant” trade diversion, with Chinese merchandise esports project to rise by 4% to 9% across all regions outside of North America while goods on the China to US route in sectors such as textiles, apparel, and electrical equipment are forecast to fall.
The WTO also notes that the trade in services is also forecast to fall as the demand for goods trade weakens in services such as transport and logistics, particularly for freight shipping and logistics services in ports and airports.
It gets worse for the United States. In a separate item, the WTO notes that the downturn in North America will be particularly steep. “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 WTO notes.
UNCTAD: world is on a recessionary trajectory; “real threat”
More generally, the UN Conference on Trade and Development – a separate UN body, has declared that the global economy is “under pressure,” and that real gross domestic product growth could fall to 2.3%, down from 2024 estimates of 2.8%. “The world economy is on a recessionary trajectory, driven by escalating trade tensions and persistent uncertainty”, UNCTAD has declared, pointing to intensifying pressure from subdued demand, trade policy shocks, financial turbulence and systemic uncertainty.
UNCTAD argued that a late 2024 / early 2025 uptick in global trade was driven by front-loaded orders and that momentum is expected to fade, or even reverse during 2025. “Trade policy uncertainty is already affecting businesses and long-term planning decisions,” the UNCTAD said.
The UN body, like the WTO, forecasts a variety of experiences for different regions. Northern America, excluding Mexico, is the region that will likely suffer the most severe fall in real gross domestic product from 2.7% in the 2024 estimates down to about 1% in the 2025 forecast. Other regions have been given a much milder downgrade in forecast growth, with East Asia, South East Asia and South Asia having their forecasts reduced by around 0.3 or 0.4 percentage points. The Euro area’s forecast in 2025 remains unchanged
Because trade policy is at historically high levels of uncertainty, hiring and investment decisions are being reduced, UNCTAD says, underlining a “real threat to economic growth, investment, and development progress”.
The UN has cautioned against ongoing fragmentation and global economic confrontation. It has instead urged regional and international policy coordination, and building upon trade and economic links.
IMF: forecasts have been revised markedly down – social unrest could reignite
Economists at the International Monetary Fund, a global economic / financial technical and policy body, have warned that they have had to revise global growth forecasts “markedly down,” which reflects tariff rates at levels “not seen in a century” and a highly unpredictable environment. Describing the near-universal US tariffs as a “major negative shock to growth,” the IMF argues that the escalation in trade tensions and high levels of policy uncertainty will have “significant impact” on global economic activity. The IMF’s global forecast drops from 3.3% global growth to 2.8 percent in 2025. Growth in the United States is forecast to slow from a previous January 2025 projection of 2.7% down to 1.8%, a fall of 0.9 percent.
Arcane stuff, to be sure, but it potentially has very obvious consequences. The IMF talks of a ratcheted-up trade war, more trade policy uncertainty, deteriorating sentiment, additional asset re-pricing, leading to broader financial instability.
“The lingering effects of the recent cost-of-living crisis, coupled with depleted policy space and dim medium-term growth prospects, could reignite social unrest,” the IMF says.
Further reading
“Trade and development foresights 2025,” UN Trade and Development (UNCTAD).
