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Info Service on WTO and Trade Issues (Dec25/10) Penang, 3 Dec (Kanaga Raja) — Global trade in goods and services in volume terms is projected to grow about 3 to 4 per cent in 2025, with prospects for 2026 being clouded by even greater uncertainty, according to UN Trade and Development (UNCTAD). In its flagship Trade and Development Report 2025, UNCTAD said that the anticipated slowdown in the final quarter of 2025, coupled with continued subdued performance in early 2026, suggests a more cautious outlook, with the pace of global trade moderating in 2026. Exceptional policy shifts throughout 2025 – whether in terms of scale, scope or speed – have plunged the world trade landscape into heightened uncertainty, said the report. It said merchandise flows have been in the spotlight, with numerous announcements about new tariff measures. In parallel, more profound multi-dimensional shifts have continued to reshape global trade. These sudden shocks and longer-term transformations both reflect a complex interplay of macroeconomic reorientation, driven by stronger government footprints, inward-looking industrial policies, geopolitical tensions and rapid technological change, it added. These forces will continue to shape the world economy and international trade in the years ahead. While it is premature to predict the ultimate trajectory or destination, the near-term outlook appears underwhelming, said the report. “Intensifying headwinds – such as the unwinding of pre-tariff front-loading and the more tangible impacts of new tariff hikes – already started to weigh on cross-border economic activity in recent months.” Moreover, heightened uncertainty per se undermines trade prospects and can even be more disruptive than new tariffs as firms can adapt to rising costs but struggle to plan around unpredictable policy shifts, said UNCTAD. It said that the effects will vary across countries and industries. The reconfiguration of supply chains and trade networks, as well as the deployment of new technologies, may even create opportunities for certain firms, sectors and economies. Overall, however, it said the current policy stance is likely to further strain an already fragile global economic environment. TRADE DYNAMICS “Amid the numerous trade policy measures announced throughout 2025, the relative trade dynamism observed during the first half of the year might seem unexpected, because such announcements typically entail significant disruptions,” said the report. In the very short-term, however, there was a strong incentive to export as much as possible to the United States before the new tariffs took effect. Partly for this reason, preliminary estimates point to an expansion of world trade, in real terms, in the range of 4 per cent during the first semester, it added. Measured in dollars, export revenues from goods and services rose by $300 billion year-on-year, reaching a total of $16 trillion. The report said that merchandise trade volumes – defined as the average between exports and imports in constant prices – were, on average, about 4 per cent higher during the first semester of 2025 than the equivalent period in 2024, with monthly gains peaking in March and April 2025. “This surge primarily reflects a significant temporary rise in imports in the United States due to pre-tariff front-loading. Netting out the contribution of this spike, world trade would have grown at 2.5 to 3 per cent, roughly on par with the growth rate of global economic activities.” The temporary hike was a key driver of the strong dynamism in exports from East, South and South-East Asia, the world’s largest regional manufacturing hub, said UNCTAD. Aggregated export flows from China, India, Indonesia, Japan, Malaysia, Pakistan, Philippines, the Republic of Korea, Singapore, Thailand, Hong Kong (China) and Taiwan Province of China collectively expanded by almost 10 per cent year-on-year, in real terms, during the first semester. Elsewhere in the world – except in Latin America – real export dynamics were relatively muted. In the United Kingdom, exports shrank by 2 per cent, while in the euro area, the world’s largest trading group of economies, the growth of exports was flat. Meanwhile, the exports of the United States and those of the group of other developed economies both grew about 2 per cent. On the other hand, exports from Latin America registered 8 per cent growth, partly due to a low base. A deeper look shows that in terms of monthly export levels, this region never exceeded the all-time high of December 2024 during the first six months of 2025, indicating that outward-oriented economic activities were less robust than the headline figure suggests, said the report. As regards imports, the report said that data echoed macroeconomic conditions across many economies. In China and the euro area – which together account for almost 40 per cent of global trade – imports remained subdued, continuing a prolonged pattern of weakness, it added. More precisely, monthly Chinese import levels during the first half of 2025 oscillated from 1 to 7 per cent below their 2021 average. Similarly, euro area imports were consistently 4 to 5 per cent lower than this benchmark. The prevailing lack of internal dynamism in these two major economic hubs is primarily responsible for this outcome, it said. Elsewhere, only a few regions experienced sustained upward trends in imports. Where such patterns did emerge, they were often driven by low-base effects rather than underlying strength, it noted. The report said considering nominal revenues of merchandise trade – a timelier and more comprehensive gauge of trade momentum – globally aggregated dollar exports increased by 2 per cent, or $230 billion, during the first semester of 2025, reaching almost $12 trillion. Fast-growing export revenues in developing Asian economies supported this expansion. Taiwan Province of China, for instance, posted 25 per cent year-on-year growth, driven by strong demand for artificial intelligence products. Exports from the Philippines and Viet Nam expanded by approximately 15 per cent. The report said beyond the short-term dynamics, the reorientation of trade flows and reconfiguration of supply chains are other critical dimensions to monitor. The contours of these evolutions remain difficult to discern, as identifying consistent patterns amid noisy and fragmented data is challenging. Nonetheless, it said that some metrics show, for instance, that Chinese exports to countries in Africa and to the Association of Southeast Asian Nations (ASEAN) have increased, while shipments from China to the United States have declined. “Friend-shoring” and “near-shoring” trends appear to have stalled, or even reversed, in late 2024 and early 2025, it added. The report said intentions in certain countries to repatriate industrial production have yet to materialize on a broad scale, partly because factory relocations and supply chain restructuring can sometimes span a decade or more. The extremely high uncertainty that currently prevails is, moreover, not conducive to major supply chain shifts, it added. “Key planning parameters on which firm managers rely are simply too volatile and blurred at the moment to support any large-scale transformation of their operations.” In this regard, the report said rather than fast-tracking the redeployment of industry, many entrepreneurs have adopted a “wait-and-see” approach. In sum, it said while Governments’ intentions to re-attract production domestically currently rank high, a volatile economic environment – largely driven by policy – hinders such efforts. The report pointed out that if one thing appears clear amid heightened uncertainty, it is that firm managers are increasingly prioritizing markets seen as more predictable. Hence, further diversion of Chinese exports away from the United States is expected to accelerate. Such shift could exert a disinflationary influence in regions where exports are ultimately reallocated, it cautioned. European countries, where currencies have appreciated against both the dollar and the yuan since early 2025, are particularly well positioned to experience these dynamics, it suggested. However, the report said by mid-2025, the impact of recent front-loading activities had overshadowed the effects of trade diversion, making it difficult to isolate these patterns in the data. As these temporary distortions fade, the underlying trends should become more discernible, it suggested. One factor that could challenge this scenario is the potential for an improvement in trade relations between China and the United States, the report further said. Optimism persists, especially after a meeting between the two Heads of State and Government took place in late October 2025. Still, caution is warranted: The path towards tariff levels closer to what was in place prior to 2017 remains long and uncertain. If no common ground is found, then further fragmentation of global trade cannot be ruled out – posing additional risks for many bystander economies, the report warned. With respect to services, the report said export revenues from services slowed down during the first quarter of 2025 before bouncing back during the second quarter. Measured in current dollars, on-year growth for the first half of 2025 stood at approximately 7 per cent. In absolute terms, global trade in services rose by about $270 billion between January and June 2024 and the same period in 2025, reaching nearly $4.4 trillion, according to UNCTAD data. However, the report pointed out that significant currency fluctuations partially obscured this aggregate. Several months have passed since the April 2025 tariff measures announced by the United States. The new rates targeted a broad spectrum of imports – primarily manufactured products, albeit not only these, it noted. It said the initial announcements were often followed by carve-out provisions, upward and downward revisions, implementation delays and various clarifications, resulting in a sequenced implementation process shaped by evolving operational conditions. “These procedural adjustments postponed the actual enforcement of the tariffs, and their full economic impact has yet to materialize.” The trade landscape remains volatile and any forward-looking assessments should be approached with caution, the report suggested. However, it said that by early August 2025, conditions seemed to have stabilized, at least partly. On 7 August, a revised tariff schedule came into effect, imposing additional ad valorem duties ranging from 10 to 50 per cent on a broad variety of import products. This marked the end of the temporary tariff reprieve that followed the April announcements, ushering in what many view as a fundamentally new trade regime for the United States. Nonetheless, uncertainty persisted. On 29 August, a federal appeals court ruled that most new tariffs introduced by the US Administration were unlawful. The court, however, delayed the enforcement of its decision. Subsequently, the report noted, the Supreme Court agreed to fast-track the proceedings. The oral arguments took place on 5 November 2025. The final decision is expected in the following months. When comparing the tariff measures announced in August to those initially proposed in April, several developing countries ultimately faced more moderate increases, said UNCTAD. For instance, several economies that had originally been assigned rates exceeding 30 per cent – though not all – saw their tariffs reduced by nearly half, if not more. Those benefiting from these downward revisions included Angola, Bangladesh, Botswana, Cambodia, Cote d’Ivoire, Fiji, Guyana, Indonesia, Lesotho, Madagascar, Mauritius, Sri Lanka, Thailand, Viet Nam and Taiwan Province of China. While no foreign economy has been entirely spared, many developing countries were notably absent from Annex I of the Executive Order of 31 July 2025. “This means they were subject to an additional ad valorem tariff of 10 per cent, the lowest an economy could get under the new regime. This rate is far from negligible,” said the report. Yet an additional 10 per cent ad valorem duty should not completely jeopardize their export prospects, especially as all other exporters to the United States were subject to at least the same conditions, it suggested. “Compared to the April announcements, this can be seen as a partial response to an earlier call by UNCTAD asking policymakers to reconsider the additional tariffs imposed on developing countries, especially small and vulnerable ones.” Still, more could be done to exclude such economies from any additional duty. A majority have almost no effect on the United States’ trade deficit, said UNCTAD. However, the report said that a handful of countries, nonetheless, experienced a deterioration in export conditions between the initial tariff announcements in April and the measures in place by late August – reflecting the impact of a more transactional and unpredictable foreign policy environment. Brazil and India, for example, faced additional tariffs of 50 per cent on a wide range of export products by that time, compared to the 2024 baseline. These rates represent a sharp departure from initial additional tariffs of 10 and 26 per cent, respectively. While negotiations to reduce these rates are ongoing, significant uncertainty continues to cloud the outcome of these discussions, the report said. TRADE OUTLOOK The report said that in many respects, the world economy has ventured into uncharted territory. The heightened uncertainty confronting economic agents only compounds the complexity of the current landscape. “Adding to the challenges, numerous recently released data series may have been distorted by transient factors, making their interpretation more precarious. Under such conditions, it is both prudent and necessary to exercise caution regarding what can be realistically and accurately predicted.” Forecasting the final annual trade figures for 2025 is relatively more straightforward than projecting those for 2026, for at least two reasons, the report explained. First, data from the early months of 2025 are already available, reducing the scope for future developments to significantly alter annual aggregates. Second, a wide array of indicators provides a reasonably clear picture of near-term trends. Among these, the “new export orders” sub-components of manufacturing purchasing managers’ indices have consistently stood below the neutral threshold of 50 across numerous economies in the second and third quarters of 2025. The report said this signals a broad-based contraction in export demand. In several cases, these indicators have not only remained subdued but also trended downward, underscoring intensifying headwinds for manufacturing exporters globally. As for trade in services, recent trends reveal a marked divergence across key sectors. In 2025, transport services are expected to remain relatively subdued. Maritime trade volume is projected to expand by just 0.5 per cent, with containerized trade growing slightly faster at 1.4 per cent. Looking ahead, total seaborne trade is forecast to grow at an average annual rate of 2 per cent, with containerized volumes rising marginally faster, the report suggested. By contrast, travel services are anticipated to show greater resilience, with growth in international arrivals for the year 2025 ranging from 3 to 5 per cent. Given these dynamics, the report said global trade in goods and services is projected to grow about 3 to 4 per cent in 2025. “The anticipated slowdown in the final quarter of 2025, coupled with continued subdued performance in early 2026, suggests a more cautious outlook, with the pace of global trade moderating in 2026.” Notably, the lagged impact of recent tariff hikes is likely to exert downward pressure on trade volumes, with the risk of these effects spreading across borders through global supply chains and amplifying broader contagion in international commerce, the report underlined. It said while the headline figure suggests moderate growth, it conceals significant heterogeneity across firms and countries. In this context, it said small enterprises and low-income economies are especially vulnerable, as they mostly lack the capacity to respond to unpredictable trade environments. It said their vulnerability is compounded by persistent uncertainty surrounding the extension of trade preference programmes, the specifics of transshipment conditions and evolving rules-of-origin frameworks. UNCTAD said that these uncertainties over future market access conditions continue to undermine strategic planning, deter investment, and limit their meaningful participation in international trade and global supply chains. In these challenging times, it is imperative for all stakeholders to closely monitor policy shifts and adapt sourcing and market strategies accordingly, it suggested. +
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