The World Trade Organization (WTO) has sounded the alarm on global trade growth, revising its 2025 merchandise trade forecast from a previously optimistic 3.0% growth to a significant 0.2% decline. This shift comes as trade wars between major economies, particularly the United States and China, continue to intensify, with growing concerns over the impact of protectionist policies and tariffs on global economic stability.
The global economic landscape has been shaped by escalating trade barriers, with the U.S. and China at the forefront of these tensions. The U.S. has imposed sweeping tariffs, including a blanket 10% duty on all imports, as well as higher tariffs on Chinese goods, resulting in a reduction in trade between the two countries. Although certain tariffs have been temporarily suspended, the WTO warns that the potential reimposition of these trade barriers could further contract global trade by up to 0.8%. In a worst-case scenario, global trade could face a 1.5% shrinkage, with global GDP growth potentially slowing to just 1.7%.
This downward trend in global trade is also being exacerbated by the increasing trend of countries opting for protectionist policies, which restrict international market access and complicate cross-border trade flows. The trade war between the U.S. and China has emerged as one of the most impactful, with the bilateral trade volume between the two countries expected to drop sharply, with certain product categories seeing declines of up to 91%. This contraction underscores the profound effects that trade wars have on global commerce, disrupting established supply chains and shifting market dynamics.
While merchandise trade faces a tough outlook, the services sector is expected to see more moderate growth. The WTO forecasts a 4.0% increase in global services trade in 2025, a slowdown from the 6.8% growth seen in 2024. Though services trade growth is set to decelerate, it remains a relatively more resilient part of the global economy amid rising uncertainties in goods trade.
The WTO report also highlights growing uncertainties in trade policy, making it increasingly difficult for businesses and governments to forecast with confidence. A significant shift from a rules-based trading system to a more deals-oriented, bilateral approach is contributing to the fragmentation of the global trade system. Trade flows between major economic blocs have shown slower growth rates compared to intra-bloc trade, further deepening concerns about the fragmentation of the global economy. The WTO warns that this trend could reduce global real income by 5%, with developing countries bearing the brunt of the economic fallout.
The rise of fragmented trade relations is particularly concerning for developing economies, which are more reliant on open global markets to sustain their growth. These nations are expected to face substantial losses, further widening the economic gap between advanced and developing economies.
The WTO’s updated trade forecast reflects the profound challenges posed by the current global trade environment. The sharp reduction in the global merchandise trade growth projection is a clear indication of the economic risks posed by ongoing trade wars and protectionism. While the services sector is expected to provide some stability, the overall picture remains concerning, with developing economies most vulnerable to these disruptions.
For policymakers, businesses, and international organizations, these developments present a critical opportunity to reassess trade strategies and focus on fostering collaboration rather than competition. The shift toward protectionism, while motivated by short-term political goals, risks undermining the long-term growth prospects of the global economy. It is crucial to prioritize open, rules-based trade systems that can address the concerns of all stakeholders while ensuring economic stability for all nations, particularly those at greater risk of suffering the consequences of trade conflict.
Ultimately, the future of global trade depends on how quickly nations can work together to rebuild trust and create an environment conducive to sustainable, equitable economic growth. The growing threat of fragmentation and reduced global trade highlights the need for a renewed commitment to multilateral trade agreements and international cooperation.