The World Trade Organization (WTO), in its Global Trade Outlook and Statistics 2025, forecasts a 0.2% contraction in global merchandise trade. This downturn reflects increasing geopolitical tensions, trade fragmentation, and the uncertain trajectory of global tariff regimes—especially the escalating tariff war between the United States and China.

What Is the Global Trade Outlook for 2025–26?

1. Merchandise Trade Contraction

• Revised Forecast: A 0.2% decline in global goods trade in 2025.

• High-Risk Scenario: If trade tensions escalate—especially via new tariffs—the contraction may worsen to 1.5%.

• Comparison with 2024: This is a significant reversal from the 2.9% growth seen in 2024.

2. Impact of Tariffs and Trade Tensions

• Reactivation of US reciprocal tariffs could shave off 0.6 percentage points from global trade growth.

• Continued US-China tariff escalation may result in a further 0.8 percentage point drop.

• Growing use of trade-restrictive measures and policy retaliation is adding to economic fragmentation risks.

3. Services Trade: A Mixed Outlook

• Global services trade is projected to grow at 4.0% in 2025.

• However, the growth is weaker than anticipated due to:

  • Slowdown in goods trade impacting transport and logistics services.

  • Dampened investment-related services amid policy uncertainty.

4. Regional and Country-Level Impacts

• North America: Faces the sharpest export decline at -12.6%, driven by internal restructuring and external trade frictions.

• Asia: Forecast to grow modestly at 1.6% in merchandise exports.

• Europe: Projected to register a 1.0% export increase, supported by intra-regional trade buffers.

• Least Developed Countries (LDCs): Face heightened vulnerability due to overdependence on limited commodities and market access volatility.

5.Trade Diversion and Reallocation

• US-China trade disruptions are driving trade diversions, with:

  • China's exports increasing by 4–9% to markets beyond North America.

  • US imports from China declining, creating opportunities for third-country exporters, including emerging economies and LDCs.

6. Global Economic Risks

• UNCTAD forecasts global GDP to grow by just 2.3% in 2025, raising concerns of a global slowdown or recession.

• Developing economies are particularly exposed to trade, financial, and supply chain shocks.

• UNCTAD calls for enhanced regional cooperation and multilateral coordination to address systemic vulnerabilities.

India’s Position in Global Trade (2024 Snapshot)

Merchandise Trade (Excluding Intra-EU Trade):

• Export Rank: Fell to 14th, with 2.2% of global merchandise exports.

• Import Rank: Held at 7th, maintaining a 3.4% share.

Commercial Services Trade:

• Export Rank: Dropped to 6th, share slightly declined from 5.4% to 5.3%.

• Import Rank: Steady at 6th, but share slipped from 4.2% to 4.1%.(India’s trade performance remains steady in share terms but is under pressure due to global volatility and declining competitiveness in certain export segments.)

World Trade Organization (WTO): Legal & Institutional Overview

What is the WTO?

• An international organization established in 1995 under the Marrakesh Agreement, following the Uruguay Round (1986–94).

• It replaced the General Agreement on Tariffs and Trade (GATT), which had governed trade since 1948.

Mandate:

• To regulate trade in goods, services, and intellectual property among nations.

• To resolve trade disputes, promote transparency, and ensure a rules-based global trading system.

Headquarters: Geneva, Switzerland

Members: 166 (representing over 98% of global trade)

India’s Role: Founding member of GATT (1948) and WTO (1995)

Key WTO Agreements and Instruments