Global Daily Tax News, US Reciprocal Tariffs Risk Stunting World Economy, WTO Says, (Apr 21, 2025)

The World Trade Organization has estimated that the US's tariff policies will result in a steep drop in both imports and exports to North America, in a new report that highlights the particularly deleterious impact that policy uncertainty is having on business decision-making.

Factoring in the current pause to reciprocal tariffs, the WTO has estimated there will be a 12.6 percent decline in exports from North America and a 9.6 percent drop in imports this year.

Worldwide, the volume of world merchandise trade is expected to fall by 0.2 percent. This is about three percentage points lower than what would have been expected under a "low tariff" baseline scenario, says the WTO's Global Trade Outlook and Statistics report, released April 16, 2025. The WTO estimates that global international trade flows could decline by 1.5 percent this year "if the situation deteriorates". Last year, the volume of world merchandise trade grew 2.9 percent.

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 four percent – 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, [and] 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."

The report includes a special section that analyzes the potential fallout from different policies that could be adopted within the US and overseas.

"Our simulations show that trade policy uncertainty has a significant dampening effect on trade flows, reducing exports and weakening economic activity," WTO Chief Economist Ralph Ossa said. "Moreover, tariffs are a policy lever with wide-ranging, and often unintended consequences. In a world of growing trade tensions, a clear-eyed view of those trade-offs is more important than ever."

While trading activity is expected to fall in North America, Asia is projected to post modest growth in both exports and imports this year (1.6 percent for both), along with Europe (one percent export growth, 1.9 percent import growth).

The WTO said the disruption in US-China trade is expected to trigger significant trade diversion, raising concerns among third markets about increased competition from China. Chinese merchandise exports are projected to rise by four percent to nine percent across all regions outside North America, as trade is redirected. At the same time, US imports from China are expected to fall sharply in sectors such as textiles, apparel, and electrical equipment, creating new export opportunities for other suppliers able to fill the gap, the WTO said.

The report says "the reinstatement of US tariffs could have severe repercussions for export-oriented least-developed countries (LDCs) whose economies are particularly sensitive to external economic shocks due to their concentration of trade on a small number of products as well as their limited resources to deal with setbacks. Under the current situation with the pause on US 'reciprocal' tariffs, LDCs may benefit from trade diversion as their export structure is similar to China's, especially in textiles and electronics."