WTO Forecasts Global Trade Decline as U.S.-China Tensions Escalate

The World Trade Organization (WTO) has revised its 2025 global merchandise trade forecast, now projecting a 0.2% decline instead of the previously anticipated 3.0% increase. This adjustment is primarily attributed to the resurgence of U.S. tariffs and broader economic spillovers.

WTO Director-General Ngozi Okonjo-Iweala expressed concern over the contraction's potential impact on global GDP, financial markets, and particularly on developing economies. The escalating trade war between the U.S. and China, with tariffs exceeding 100%, is fueling fears of economic decoupling between the two largest economies. The WTO warns that a full decoupling could shrink global GDP by 7% in the long term. Merchandise trade between the U.S. and China is projected to fall by 81%, with exemptions for items like smartphones preventing an even larger decline.

Services trade is expected to grow modestly at 4.0% in 2025, down from 6.8% growth in 2024. The WTO also highlighted the unpredictability of current trade policy shifts, making reliable forecasting difficult, and pointed to the shift from a rules-based to a deals-based trading system.

Meanwhile, the U.N. Trade and Development agency predicts global economic growth could slow to 2.3% amid rising trade tensions.

A Reuters poll indicates that aggressive U.S. tariff policies are expected to significantly slow the U.S. economy in 2025, with the recession probability in the next 12 months rising to 45%—the highest since December 2023. GDP growth estimates for 2025 have been downgraded from 2.2% to 1.4%, with continued weak growth predicted for 2026. Inflation expectations have surged, limiting the Federal Reserve’s flexibility to cut interest rates.

Major technology companies like Nvidia and AMD have issued warnings about costly inventory and export restrictions, anticipating losses due to new U.S. export rules targeting AI-related products in the ongoing trade conflict with China. Retailers such as Temu and Shein announced price hikes starting April 25 due to the closure of the “de minimis” tariff loophole. The S&P 500 fell 2.2%, reflecting market concerns over these developments.

In response to the escalating trade tensions and the executive branch's tariff policies, the Trade Review Act of 2025 was introduced in the Senate on April 3, 2025, by Senator Maria Cantwell. The bill, cosponsored by a bipartisan group of 13 senators, aims to provide for notification to, and review by, Congress with respect to the imposition of duties. A companion bill was introduced in the House of Representatives by Representative Don Bacon, emphasizing the necessity for Congress to reclaim its constitutionally mandated authority over trade matters.

The imposition of high tariffs is expected to lead to increased prices for a wide range of consumer goods, affecting household budgets and potentially reducing consumer spending. Industries reliant on international trade, such as manufacturing and agriculture, may face job losses due to decreased demand and retaliatory tariffs from trade partners. The escalating trade tensions contribute to uncertainty and disruptions in global supply chains, affecting businesses and economies worldwide.

The current state of global trade amid escalating U.S.-China tensions underscores the need for diplomatic efforts to mitigate the adverse effects on the global economy.