Tariff uncertainty will hit global GDP by 0.6%, warns WTO

Donald Trump's on-off tariff war and the global uncertainty it has provoked will see merchandise trade fall by 0.2 percent this year, according to the World Trade Organization (WTO). 

It will also cause a 0.6 percent hit to global GDP (gross domestic product). And things could get even worse.

If the U.S. President's currently suspended reciprocal tariffs are enacted in July, an additional 0.6 percentage points in merchandise trade will be lost, the intergovernmental organization predicts.

Merchandise trade is defined as goods which add or subtract from the stock of material resources of a country by entering or leaving its economic territory.

According to the report authors: "Taken together, the reciprocal tariffs and spreading trade policy uncertainty (TPU) would lead to a 1.5 percent decline in world merchandise trade volume in 2025."

They anticipate that North America will reduce global merchandise trade growth by 1.7 percent in 2025. By contrast, Asia and Europe continue to contribute positively, although less than would otherwise have been the case. Asia's positive global contribution will be halved to 0.6 percent.

WTO economists believe that global GDP would have risen to 2.8 percent in 2025 but will now increase by 2.2 percent, before reaching 2.4 percent in 2026. 

They added: "Tariff changes are forecast to have the largest impact on North America (-1.6 percentage points), followed by Asia (-0.4 points) and South and Central America and the Caribbean (-0.2 points). 

"While the imposition of reciprocal tariffs would have a limited effect on the global figure, a wider spread of trade policy uncertainty could nearly double the GDP loss to 1.3 percentage points relative to the baseline."

There is mixed news for China. It could see its merchandise exports rise by four percent to nine percent across all regions outside North America as trade is redirected. However, the WTO believes that with U.S. imports from China falling sharply in sectors such as textiles, apparel and electrical equipment, new export opportunities will open for suppliers in some least-developed countries (LDCs).

In its executive summary, the WTO states: "The volume of world merchandise trade is now expected to decline by 0.2 percent in 2025 before posting a modest recovery of 2.5 percent in 2026. 

"The new estimate for 2025 is nearly three percentage points lower than it would have been without recent policy shifts, and marks a significant reversal from the start of the year, when WTO economists expected to see continued trade expansion supported by improving macroeconomic conditions."

Weakened demand

The report says that although not directly subject to tariffs, services trade will be adversely affected, with weakened demand for transport and logistics services. 

As a result, "the global volume of commercial services trade is now forecast to grow by 4.0 percent in 2025 and 4.1 percent in 2026 – well below baseline projections of 5.1 percent and 4.8 percent."

The downturn in trade prospects follows a stellar performance in 2024, when the volume of world merchandise trade grew by 2.9 percent and commercial services trade expanded by 6.8 percent. 

The WTO operates a global system of trade rules and acts as a forum for negotiating trade agreements. Formed in 1995, it replaced the General Agreement on Tariffs and Trade (GATT) established in 1948. It consists of 166 countries, including China and the U.S.