Tariff tensions cloud global trade outlook for 2025

The WTO projects a subdued global trade outlook for 2025, with services trade expected to grow by just 4%—1% point below earlier forecasts. Merchandise trade risks remain high due to US President Trump’s suspended reciprocal tariffs, which, if reactivated, could shrink trade volumes by up to 1.5%. For India, the outlook is particularly concerning, as North American imports may drop 9.6%, impacting its top export market.

The WTO Secretariat’s latest global trade outlook and statistics report indicates that the volume of services trade is projected to grow by 4%  in 2025, about 1% point lower than earlier expectations. The report highlights that trade tensions, particularly those stemming from US President Donald Trump’s tariff measures, have “deteriorated” the global trade outlook significantly. Even if the current pause on reciprocal tariffs continues, world trade volumes are expected to shrink by 0.2% in 2025.

However, if the suspended tariffs are reactivated after the 90-day pause, the resulting trade policy uncertainty could lead to a sharper 1.5% decline in world merchandise trade. The report further warns, “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 realised, reciprocal tariffs would reduce global merchandise trade volume growth by 0.6% points in 2025, while spreading trade policy uncertainty could shave off another 0.8% points,” although a modest recovery of 2.5% is anticipated in 2026.

The outlook raises concerns for Indian exporters, especially as North American imports are projected to decline by 9.6% in 2025 even in the best-case scenario. The US, India’s largest export destination in FY25, accounted for over 19% of total exports, making any import reduction particularly impactful.

India also faces challenges from a “significant trade diversion” resulting from the US-China dispute. While Chinese exports may grow by 4–9% outside North America, India has tightened import monitoring for goods from China, Vietnam, and Indonesia. The tariff war, however, could open up new export opportunities for Indian suppliers, particularly in sectors where US imports from China are expected to fall.