WTO warns of 1% global trade contraction amid US tariff measures

The World Trade Organisation (WTO) has raised concerns over the potential impact of recent tariff measures announced by the United States, forecasting a 1 per cent contraction in global merchandise trade volumes for 2025.

This represents a sharp downward revision of nearly four percentage points from earlier projections.

In a statement on Thursday, the Director-General of the WTO, Ngozi Okonjo-Iweala, warned that the new US tariffs, introduced on Wednesday, could trigger a broader trade conflict, with retaliatory measures likely to exacerbate the decline in global trade.

“While the situation is rapidly evolving, our initial estimates suggest that these measures, coupled with those introduced since the beginning of the year, could lead to an overall contraction of around 1 per cent in global merchandise trade volumes this year,” said the WTO.

This decline represents a significant downward revision, as earlier forecasts had predicted a modest increase in global trade for 2025.

Mrs Okonjo-Iweala expressed concern that the new measures could lead to a cycle of retaliatory tariffs, further intensifying trade tensions.

“I am deeply concerned about this decline and the potential for escalation into a tariff war with a cycle of retaliatory measures that lead to further declines in trade,” the DG warned.

She disclosed that the vast majority of global trade continues to flow under the WTO’s Most-Favored-Nation (MFN) terms, with this share now standing at 74 per cent, down from around 80 per cent at the start of the year.

The former Nigerian finance minister warned that the US tariffs could disrupt global trade flows and cause trade diversion. She urged WTO members to manage the resulting tensions responsibly and use the WTO as a platform for dialogue to prevent conflicts from escalating and to maintain a stable, open trading system.

President Donald Trump, on 2 April, announced a 10 per cent baseline tariff on all imports, starting 5 April, along with higher duties for countries seen as trading unfairly. Nigerian exports to the US will now face a 14 per cent tariff.

These “reciprocal” tariffs are due to take effect on 9 April. President Trump described the measures as part of his strategy to promote “economic independence” and reduce the US trade deficit, particularly in relation to countries like China and the European Union.

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The international response has been swift. China has filed a formal complaint with the WTO, claiming that the tariffs violate global trade rules. In retaliation, Beijing has imposed its own tariffs on US goods and introduced export controls on key materials like rare earth elements, crucial for high-tech industries.

The European Union and other trading partners are considering their own countermeasures, heightening the risk of a full-scale trade war.

The global financial markets have reacted with concern.

According to The Guardian, US stocks experienced their most significant drop since June 2020, with the S&P 500 falling 4.9 per cent, wiping out $2.5 trillion in market value. Nasdaq also posted substantial losses.

The WTO’s warning shows the fragility of the global trading system and the potential ripple effects of protectionist policies.