US tariffs will make global trade shrink, says WTO

The World Trade Organization (WTO) has forecast that global trade will fall this year because of US President Donald Trump’s tariffs.

It added “severe downside risks”, including reciprocal tariffs and political uncertainty, could lead to an even sharper decline in global goods trade.

“The decline is expected to be particularly steep in North America,” the WTO said, forecasting trade to drop by more than a tenth in that region.

Ngozi Okonjo-Iweala, the WTO director general, called the “decoupling” of the US and China “a phenomenon that is really worrying to me”.

The WTO previously expected global goods trade to expand by 2.7% in 2025 but it now forecasts it will fall by 0.2%.

Chief economist Ralph Ossa said: “Tariffs are a policy lever with wide-ranging, and often unintended consequences.

“Our simulations show that trade policy uncertainty has a significant dampening effect on trade flows, reducing exports and weakening economic activity,” he added.

Also on Wednesday, the UN trade and development body, UNCTAD, released its own report which forecasts global growth to slow to 2.3% in 2025 due to escalating trade tensions and uncertainty.

It said the projection was below “the 2.5% threshold widely viewed as signalling a global recession”.

• Tariffs will hit US economy and raise prices, says Fed boss

A baseline tariff of 10% on almost all foreign imports to the US kicked in on 5 April, although some countries and goods are exempt.

China has a much higher tariff, which now totals 145% on most goods.

The US stock market slid on opening on Wednesday with the big indexes falling amid the ongoing uncertainty.

Despite the prediction of plunging trade with the US, the WTO expects some regions will still see trade growth.

It said Asia and Europe were still projected to post modest growth in both exports and imports this year.

“The collective contribution to world trade growth of other regions would also remain positive,” the WTO report said.

For the first time, the report contains a forecast for services trade – which is when countries buy and sell services to each other instead of goods.

This is common in industries such as tourism or finance where nothing physical is shipped but a service is provided.

The WTO forecasts services trade to grow by 4% in 2025, which is around one percentage point less than expected.

Since Trump’s inauguration in January there has been a flurry of announcements on tariffs.

The US president says the import taxes will encourage US consumers to buy more American-made goods, increase the amount of tax raised, and lead to huge levels of investment in the country.

However, critics say bringing manufacturing back to the US is complicated and could take decades and that the economy will struggle in the meantime.

Trump has also backtracked on many of his announcements.

Just hours after steep levies against roughly 60 of America’s trading partners kicked in earlier this month, Trump announced a 90-day pause on those tariffs to all countries bar China, in the face of mounting opposition from politicians and the markets.

In March, the governor of the Bank of England has warned that Trump’s tariffs could mean less money in UK consumers’ pockets.

Source: BBC