• The World Trade Organisation (WTO) said that the world merchandise trade is expected to decline by 0.2 per cent in volume terms in 2025 amid imposition of high tariffs by the US and China on each other. 

• It is nearly three percentage points lower than what would have been expected under a low tariff baseline scenario, according to the WTO Secretariat’s latest Global Trade Outlook and Statistics report released on April 16.

• This is premised on the tariff situation as of April 14. Trade could shrink even further, to -1.5 per cent in 2025, if the situation deteriorates.

• 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 4 per cent, slower than expected.

• 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, the most vulnerable economies in particular. 

• At the start of the year, the WTO Secretariat expected to see continued expansion of world trade in 2025 and 2026, with merchandise trade growing in line with world GDP and commercial services trade increasing at a faster pace. 

• However, the large number of new tariffs introduced since January prompted WTO economists to reassess the trade situation, resulting in a substantial downgrade to their forecast for merchandise trade and a smaller reduction in their outlook for services trade.

• 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 percentage points in 2025 while spreading trade policy uncertainty could shave off another 0.8 percentage points. 

Disruption in US-China trade

• 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 4 per cent to 9 per cent 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.

• Additionally, 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. 

• Although the high tariffs are limited to goods, their effects are expected to ripple across the broader economy, including on services trade.

What is the WTO?

• The World Trade Organisation (WTO) is the only global international organisation dealing with the rules of trade between nations. 

• The primary purpose of the WTO is to open trade for the benefit of all.

• At its heart are the WTO agreements, negotiated and signed by the bulk of the world’s trading nations and ratified in their parliaments. The goal is to ensure that trade flows as smoothly, predictably and freely as possible.

• The WTO came into being on January 1, 1995. But its trading system is half a century older. Since 1948, the General Agreement on Tariffs and Trade (GATT) had provided the rules for the system. Whereas GATT had mainly dealt with trade in goods, the WTO and its agreements cover trade in services, and in traded inventions, creations and designs (intellectual property).

• The WTO provides a forum for negotiating agreements aimed at reducing obstacles to international trade and ensuring a level playing field for all, thus contributing to economic growth and development. 

• It also provides a legal and institutional framework for the implementation and monitoring of these agreements, as well as for settling disputes arising from their interpretation and application. 

• The WTO currently has 166 members, accounting for 98 per cent of world trade. A total of 25 countries are negotiating membership.

• The WTO’s top level decision-making body is the Ministerial Conference, which meets usually every two years.

• WTO activities are supported by a Secretariat led by the WTO Director-General. The Secretariat is located in Geneva, Switzerland.

• The General Council meets regularly to carry out the functions of WTO. It has representatives (usually ambassadors or equivalent) from all member governments and has the authority to act on behalf of the ministerial conference which only meets about every two years.

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