The World Trade Organization (WTO) has issued a stark warning about the state of global trade, slashing its 2025 forecast and raising the alarm about worsening tensions between major economies. Once expected to grow by 3.0%, global merchandise trade is now projected to decline by 0.2% this year — a sharp reversal that could signal deeper trouble ahead.
This downgrade stems primarily from rising trade barriers, particularly from the United States. President Donald Trump’s administration recently introduced new tariffs on steel and automobiles, and although there has been a temporary pause on some tariffs affecting a dozen countries, the WTO says the damage may already be done. According to the organization, if the full slate of tariffs is reimposed, merchandise trade could shrink by as much as 1.5% — marking the steepest drop since the height of the COVID-19 pandemic in 2020.
WTO Director-General Ngozi Okonjo-Iweala voiced deep concern, saying the ripple effects could extend well beyond trade figures. “Trade shocks like this don’t just impact exporters and importers — they shake financial markets, slow GDP growth, and hit the pockets of everyday people,” she said at a press briefing in Geneva. She emphasized that developing countries, often reliant on global trade for growth, could be among the hardest hit.
But what worries the WTO most is not just tariffs — it’s fragmentation. The organization fears a growing economic decoupling between the world’s two biggest economies, the U.S. and China. Trade between the two is already projected to fall by a staggering 81% in 2025. Without recent tariff exemptions on products like smartphones, that number could have been even higher — closer to 91%.
“If global economies split into two separate blocs, it would do lasting damage,” Okonjo-Iweala warned. “We’re talking about a potential 7% decline in global GDP over the long term. That’s not just significant — it’s devastating.”
The WTO called this kind of geopolitical fragmentation a real threat, especially given the unpredictable and unprecedented nature of recent trade policies. Though a modest recovery is expected in 2026, with a projected 2.5% growth in trade, the risks in the current climate remain high.
The U.N. Trade and Development Agency echoed these concerns in a separate report, warning that global economic growth could slow to just 2.3% due to persistent trade tensions.
Not all is doom and gloom, however. The WTO pointed out that as U.S.-China trade declines, other countries — particularly in Asia, Africa, and Latin America — could step in to fill gaps in sectors like textiles, electronics, and clothing. Chinese exports, for example, are expected to grow in markets outside of North America by up to 9%.
Nonetheless, services trade is likely to suffer. While not directly impacted by tariffs, demand for services like logistics, travel, and investment is tightly linked to the flow of goods. The WTO expects services trade to grow by 4.0% in 2025 and 4.1% in 2026, down from previous expectations.
In 2024, the world saw relatively strong trade performance — a 2.9% increase in merchandise trade and a 6.8% rise in services. But as 2025 unfolds, uncertainty looms, and the future of global trade hangs in the balance.
