Temporary tariff pause mitigates trade contraction, but risks persist

The volume of world merchandise trade is expected to decline by 0.2% in 2025 under current conditions, nearly three percentage points lower than what would have been expected under a “low tariff” baseline scenario. WTO Secretariat recently released its latest Global Trade Outlook and Statistics report, based on the tariff situation as of 14 April. Trade could shrink even further, to -1.5% in 2025, if the situation deteriorates.

Agrifood trade little affected so far

Fernando Miranda Sotillos, agrifood advisor of the Spanish permanent mission at the United Nations Office and WTO in Geneva gave his view of the possible impact of current tariff was with the global trade of agrifood at the 27th Spanish Fruit & Vegetables congress organized by AECOC in Valencia last May 27th, and how Spain could also be affected. He reminds agrifood represents about 10% of the global trade, but considered basic necessity to feed the populations. He reminds global commerce of agrifood has been established to interconnect countries and help balance their market needs. While United States cultivates 168 million hectares for 350 million inhabitants, China grows about 158 million ha for 1,4 billion inhabitants. “The application of 10% tariffs on agrifood can be absorbed, if higher its impact will depend on the capacity of the countries to find alternative markets and supply chains” said Fernando Miranda.

Services less affected, still growing

Services trade, though not directly subject to tariffs, is also expected to be adversely affected, with the global volume of commercial services trade now forecast to grow by 4.0%, slower than expected. Director-General Ngozi Okonjo-Iweala said: “I am deeply concerned by the uncertainty surrounding trade policy, including the US-China stand-off. The recent de-escalation of tariff tensions has temporarily relieved some of the pressure on global trade. However, the enduring uncertainty threatens to act as a brake on global growth, with severe negative consequences for the world, the most vulnerable economies in particular. In the face of this crisis, WTO members have the unprecedented opportunity to inject dynamism into the organization, foster a level-playing field, streamline decision-making, and adapt our agreements to better meet today's global realities.”

Risks to the forecast

Risks to the merchandise trade forecast persist, particularly from the reactivation of the suspended “reciprocal tariffs” by the United States, as well as the spread of trade policy uncertainty that could impact non-US trade relationships. If realized, reciprocal tariffs would reduce global merchandise trade volume growth by 0.6 percentage points in 2025 while spreading trade policy uncertainty could shave off another 0.8 percentage points. Together, reciprocal tariffs and spreading trade policy uncertainty would lead to a 1.5% decline in world merchandise trade in 2025. These scenarios are explored in detail in the Analytical Chapter of the report. Risks to services trade related to the escalation in trade tensions are not currently captured in the forecast.

A reversal from 2024

The latest forecast marks a reversal from 2024, when the volume of world merchandise trade grew 2.9%, while GDP expanded by 2.8%, making 2024 the first year since 2017 (excluding the rebound from the COVID-19 pandemic) where merchandise trade grew faster than output. In 2025, the impact of recent tariff measures on merchandise trade is expected to differ sharply across regions. 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 region's performance would subtract 1.7 percentage points from world merchandise trade growth in 2025, turning the overall figure negative. Asia is projected to post modest growth in both exports and imports this year (1.6% for both), along with Europe (1.0% export growth, 1.9% import growth).

Commercial services trade

In 2024, services accounted for 26.4% of global trade based on balance of payments statistics, the highest share since 2005. Rising demand for services and advances in digitalization have helped expand the contribution of services to global trade. In 2024, services trade totalled US$ 8.69 trillion, increasing by 9% and mirroring the growth registered in 2023. This is in sharp contrast to goods trade, which rose by only 2% in value terms in 2024. Although the high tariffs are limited to goods, their effects are expected to ripple across the broader economy, including on services trade. Most services growth in 2025 will originate from Europe, where exports are expected to grow by 5.0% under current policies. European growth will continue at 4.4% in 2026. Asian economies' services exports are projected to increase by 4.4% in 2025 and by 5.1% in 2026.

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