The World Trade Organization (WTO) warned Wednesday that the new tariffs introduced this year — largely by President Trump — means a “substantial downgrade” to its 2025 trade forecast.
In its latest Global Trade Outlook and Statistics report, the WTO now expects world merchandise trade to shrink by 0.2% this year — nearly 3 percentage points lower than its projection under a “low tariff” scenario.
The organization said further tariffs and spillover effects could lead to the steepest contraction in trade since the depths of the Covid pandemic.
“I am deeply concerned by the uncertainty surrounding trade policy, including the US-China stand-off,” said WTO Director-General Ngozi Okonjo-Iweala.
He added: “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.”
Retail rout highlights ripple effects
The WTO estimates that global goods trade would decline by 0.6% if the U.S. reinstates the full slate of Trump-era tariffs, with spillover effects shaving off an additional 0.8%.
That combined 1.5% hit would mark the worst trade decline since 2020.
“If we have contraction in global merchandise, the concern is spillover into broad GDP growth,” Okonjo-Iweala told reporters in Geneva.
“We’ve seen that the trade concerns can have negative spillovers into financial markets, into other broader areas of the economy.”
Retail stocks — which rely heavily on Asian supply chains — are already feeling the ripple effects of this uncertainty. According to Morningstar, the sector is especially vulnerable in an escalating trade war.
Lululemon (LULU) is down 20.5% over the past month and 35.3% year-to-date. Nike (NKE) has slid 25.4% over the past month and 29.3% this year.
Even Apple (AAPL), which was granted a 90-day reprieve on most reciprocal tariffs, is down 8.8% in the past month and 22.3% year-to-date.
Fears of U.S.-China split grow
Okonjo-Iweala also warned of a deeper rift between the world’s two largest economies.
The WTO now expects merchandise trade between the U.S. and China to plunge 81% — a figure that could have reached 91% if not for exemptions on products like smartphones.
“A decoupling could have far-reaching consequences if it were to contribute to a broader fragmentation of the global economy along geopolitical lines to two isolated blocks,” she said.
While services trade isn’t directly impacted by tariffs, the WTO noted that weakening demand for goods could spill into other sectors.
“Our simulations show that trade policy uncertainty has a significant dampening effect on trade flows, reducing exports and weakening economic activity,” said WTO Chief Economist Ralph Ossa.
“Moreover, tariffs are a policy lever with wide-ranging, and often unintended, consequences.”
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