WTO warns of impact of tariffs for least-developed countries

The latest Global Trade Outlook and Statistics report by the World Trade Organization (WTO) Secretariat provides the export, import, and GDP growth forecasts for least-developed countries in 2025 and 2026, along with global and regional forecasts.

The report includes an analysis of the impact of US “reciprocal” tariffs and broader spillover of policy uncertainty on export-oriented LDCs.  

"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.   

Under the current situation with the pause on US' “reciprocal” tariffs, LDCs may benefit from trade diversion as their export structure is similar to China's, especially in textiles and electronics…     

The volume of world merchandise trade is expected to decline by 0.2% in 2025 under current conditions, nearly three percentage points lower than what would have been expected under a “low tariff” baseline scenario. This is premised on the tariff situation as of 14 April.       

However, severe downside risks exist, including the application of “reciprocal” tariffs and broader spillover of policy uncertainty, which could lead to an even sharper decline of 1.5% in global goods trade and hurt export-oriented least-developed countries.

  The Director General, Ngozi Okonjo-Iweala said LDCs are particularly vulnerable to current trade policy risks.

  “Among the ten economies facing the highest reciprocal tariffs, five are least-developed countries. Some may see short-term gains by filling the gap left by Chinese exports to the US, but a reinstatement of reciprocal tariffs could carry severe consequences. Rather than raising barriers, this could be a moment to offer LDCs some reprieve—by exempting them from new tariffs and reinforcing their fragile integration into the global economy. 

Exempting LDCs from all tariff increases would raise their exports, support their growth and help to create new markets." She said.

WTO chief Economist, Ralph Ossa said 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.

  “This could present an opening for some least-developed countries to expand their exports to the US market, at least with the current pause on reciprocal tariffs… [However,] if enacted, reciprocal tariffs would reduce global merchandise trade volume growth by an additional 0.6 percentage points – with particularly severe effects on some least-developed countries” Ossa noted.

He noted that a wider spread of trade policy uncertainty could cut trade growth by a further 0.8 percentage points. “Taken together, these risks would lead to a 1.5% decline in world merchandise trade volume in 2025.” he warned.    

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 forecast 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 realized, 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. 

Together, reciprocal tariffs and spreading trade policy uncertainty would lead to a 1.5% decline in world merchandise trade in 2025. These scenarios are explored in detail in the Analytical Chapter of the report. 

Risks to services trade related to the escalation in trade tensions are not currently captured in the forecast.

“Our simulations show that trade policy uncertainty has a significant dampening effect on trade flows, reducing exports and weakening economic activity,” WTO Chief Economist Ralph Ossa said. 

“Moreover, tariffs are a policy lever with wide-ranging, and often unintended consequences. In a world of growing trade tensions, a clear-eyed view of those trade-offs is more important than ever.”

Regional goods trade forecasts The latest forecast marks a reversal from 2024, when the volume of world merchandise trade grew 2.9%, while GDP expanded by 2.8%, making 2024 the first year since 2017 (excluding the rebound from the COVID-19 pandemic) where merchandise trade grew faster than output.

In 2025, the impact of recent tariff measures on merchandise trade is expected to differ sharply across regions.

Under the current policy landscape, North America is expected to see a 12.6% decline in exports and 9.6% drop in imports in 2025.             

The region's performance would subtract 1.7 percentage points from world merchandise trade growth in 2025, turning the overall figure negative. Asia is projected to post modest growth in both exports and imports this year (1.6% for both), along with Europe (1.0% export growth, 1.9% import growth).           

Both regions' contributions to world trade growth would remain positive under current policies, albeit smaller than in the baseline low tariff scenario.         

The collective contribution to world trade growth of other regions would also remain positive, in part due to their importance as producers of energy products, demand for which tends to be stable over the global business cycle.           

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% to 9% across all regions outside North America, as trade is redirected