Global trade has remained resilient so far, but a sharp slowdown is underway

As we cross the halfway point of 2025, mounting headwinds are slowing down global trade. A decade-long rise in trade restrictions has been supercharged by sharp tariff hikes and retaliatory measures from major economies over the past three months. Although some of these measures have since been rolled back and fresh negotiations are underway, businesses are still navigating choppy waters—including elevated policy uncertainty, stretched supply chains, and the ever-present threat of new barriers. In the face of this, we explore how these headwinds will likely reshape trade growth this year and next, identify the most critical risks ahead, and highlight the bright spots that could help steady the ship.

Weaker trade growth ahead

We expect global trade growth to slow markedly this year, largely because of the cumulative effects of higher tariffs and elevated policy uncertainty. Trade policy uncertainty reached a record high following the announcement of U.S. tariffs in April, but it’s eased somewhat since then as the U.S. administration rolled back some of the planned measures and launched trade negotiations with many countries (figure 1.A). After a strong start to the year, partly driven by frontloading ahead of tariff hikes, annual trade growth is forecast to decelerate from 3.4 percent in 2024 to around 1.8 percent in 2025 (figure 1.B). Compared with our January projections, global trade growth for 2025 has been revised down by roughly 1.3 percentage points, with nearly all country groups experiencing downward adjustments. At this pace, trade expansion would be less than half the annual average of about 4.9 percent in the two decades before the COVID-19 pandemic.

The downgrade since January is most pronounced for advanced economies—2025 trade growth is now projected to be roughly half of earlier forecasts, while emerging market and developing economies (EMDEs) face cuts of about one-quarter. Recent data underscore this slowdown: April’s global goods import volume decelerated sharply to 2.9 percent year-on-year (down from 6.7 percent in March), and U.S. goods import volumes plunged nearly 20 percent month-on-month. 

High-frequency indicators reinforce this broad‐based weakness. For instance, manufacturing purchasing managers’ indexes (PMIs), which reflect the health of the manufacturing sector, show new export orders contracting in over two-thirds of reported countries. In fact, the indexes imply those orders fell to a 20-month low in April and remained subdued in May. Looking ahead, if policy tensions ease and supply chains adapt to a new environment of elevated tariffs, we anticipate a modest recovery in global trade growth to 2.7 percent in 2026. Nonetheless, this projection is 0.8 percentage points lower than our January forecast.

Differing prospects across countries

These trade growth prospects vary significantly across country groups, reflecting differing exposures to restrictive measures and policy uncertainty. Advanced economies have accounted for nearly 70 percent of new trade restrictions since 2022, although their trade barriers generally remain lower than those of developing economies. Rising restrictions disproportionately affect EMDEs that depend on these markets (figure 2.A). Economies deeply integrated into global value chains or heavily reliant on the United States and other advanced markets—such as the euro area and EMDEs in Latin America and the Caribbean, and Europe and Central Asia—are poised to experience weaker trade growth (figure 2.B).

High-frequency indicators back up this divergence. Manufacturing PMIs reveal a contraction in new export orders in economies closely tied to advanced markets (figure 3.A), and in highly open EMDEs, the PMI export-orders component has weakened sharply in recent months amid elevated trade policy uncertainty. In contrast, countries with stronger trade links to EMDEs are poised to display greater resilience and a faster rebound (figure 3.B). Exports in some oil-exporting economies may even rise as production cuts ease, despite subdued global demand. This variation suggests that country characteristics and market linkages will likely drive very different outcomes across regions, even as headwinds broadly impede global trade. 

What are the key risks?

Global trade growth faces substantial downside risks amid rapidly shifting policies and persistent uncertainty.  We could see national appetites for trade restrictions further increase as countries revert to previously announced higher tariffs or expand retaliatory measures, creating broader spillovers. Such measures could prompt third markets to introduce their own trade restrictions to shield domestic industries, amplifying the dampening effect on trade flows and global demand. Beyond these near-term pressures, long-term uncertainties around supply-chain realignment add to the downside risks. For example, firms may further delay restructuring decisions as policy directions remain unclear, slowing investment in new sourcing strategies. If major economies persist with inward-looking policies, the cumulative effect could be a prolonged period of subdued trade growth, with weaker investment and slower productivity gains.

Trade agreements gaining momentum

Despite rising trade restrictions, more countries have been turning to regional trade agreements (RTAs). Regional integration among EMDEs complements global integration and can act as buffers against global fragmentation.  Seven new agreements took effect in 2024, according to the World Trade Organization, up from four in 2023 but still below the roughly 10 per year seen during the 2010s. Several of these RTAs cover both goods and services—as seen, for example, in agreements between the European Union (EU) and Chile, the EU and New Zealand, China and Nicaragua, the European Free Trade Association (EFTA) and Moldova, and Canada and Ukraine. Other such agreements focus solely on goods trade, such as the pacts between the EU and Kenya, China and Serbia, and China and Ecuador. The United States and the United Kingdom recently reached a trade agreement that reduces or eliminates a range of tariff and non-tariff barriers. Implementation of the African Continental Free Trade Area (AfCFTA) progressed last year with the expansion of the Guided Trade Initiative, as South Africa and Nigeria and other key economies joined efforts to fast-track trade among member countries. 

Some trade negotiations have also recently gained renewed momentum. The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) expanded in December 2024 to include the United Kingdom, and several other countries—including China, Indonesia, and South Korea—have expressed interest in joining. As of 2024, the CPTPP bloc accounted for about 15 percent of global gross domestic product. The EU, the world’s largest trading bloc, is likewise pursuing new and revived trade and investment talks with both advanced economies and EMDEs, engaging partners such as Canada, Australia, China, India, Mercosur, the Philippines, and the United Arab Emirates. The U.S. administration has also been engaged in negotiations on more than a dozen additional trade agreements.

Preserving the trade engine of growth 

Although global trade has remained resilient so far, a marked slowdown is underway. Rising barriers and lingering policy uncertainty have already begun to hurt economies, exposing them to serious downside risks. Yet the uneven nature of these headwinds—and the renewed momentum behind new and expanded trade agreements—shows that well-targeted policy efforts can steady the ship, dampen shocks to the global trading system, and lay the groundwork for a gradual recovery.

Global trade has been a powerful engine of economic growth for decades. Policymakers must now act decisively. Easing tensions, advancing trade negotiations, reducing restrictions, diversifying supply chains, and opening new markets are essential to sustain this engine and navigate the prolonged period of subdued trade expansion ahead.