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Info Service on WTO and Trade Issues (Jan26/02) Penang, 12 Jan (Kanaga Raja) — Global trade remained resilient in 2025, expanding by an estimated 3.8 per cent despite heightened trade policy uncertainty and higher United States tariffs, according to the United Nations. In its flagship World Economic Situation and Prospects 2026 report, the UN said this stronger-than-expected performance reflects the resilience of merchandise trade, which continued to strengthen despite significant headwinds and uncertainties, including heightened United States tariffs and ongoing strains on the multilateral trading system. Trade in services maintained solid momentum throughout 2025, supported by the strong performance of travel services and digital services as well as the spillover effects from trade front-loading, it added. In 2026, global trade growth is projected to slow to 2.2 per cent as import front-loading fades and higher tariffs weigh on economic activity, it emphasized. According to the report, the United States Government raised tariffs sharply in 2025, with the average effective rate climbing from 2.5 per cent in 2024 to an estimated 15 per cent by November 2025 – though still below the nearly 28 per cent announced in April. “Most United States trading partners now face headline tariff increases ranging from 10 to 40 percentage points, though the effective rate varies significantly depending on specific export baskets and tariff exemptions.” The United States reached numerous bilateral trade agreements during the year, including with major economies such as the European Union, Japan, and the United Kingdom, as well as with smaller partners such as Cambodia, Ecuador, and Malaysia; the status and scope of the agreements differ significantly, the report noted. “Negotiations with China progressed through several rounds, with initial temporary escalations followed by de-escalation measures such as sustained tariff pauses, prolonged export-control suspensions, and increased agricultural trade.” The United States Government also targeted tariffs at specific sectors, imposing additional levies on imports of steel, aluminium, copper, automobiles and parts, heavy vehicles, lumber, and furniture. However, the report said broad exemptions were applied to multiple categories such as electronics, machinery, and commodities such as gold and oil, with specific items listed in annex II of Executive Order 14257. Later in 2025, agricultural products also received exemptions. It said both special rates and exemptions remain highly uncertain, as ongoing section 232 investigations cover products such as pharmaceuticals and semiconductors, and revisions to the exemption list continue in response to supply and price pressures. While tariff announcements in 2025 unsettled the global trade environment and heightened uncertainty, the world economy remains remarkably integrated, the UN pointed out. “Despite growing protectionism, global trade (including both imports and exports) still accounts for over 50 per cent of GDP, underscoring persistent interdependence.” As at September 2025, 72 per cent of goods still moved under the most-favoured-nation (MFN) regime – down from over 80 per cent at the start of the year, it suggested. “These trends underscore the resilience of multilateral norms amid growing fragmentation, suggesting that the core drivers of global integration continue to operate even as higher United States tariffs reshape trade patterns.” The report said with the front-loading effect of higher tariffs dissipating, the trade outlook for 2026 remains muted. A high comparison base from 2025 is expected to bring the growth rate to a lower level. Risks to the outlook are two-sided: a renewed escalation of trade tensions and retaliatory measures among major trading partners could further dampen trade growth, while prospects for de-escalation through new or revised trade agreements offer a potential upside, it added. “Global supply chains are expected to continue adjusting, creating opportunities for deeper trade cooperation among countries and regions that remain open to integration.” In this context, the report said South-South trade has registered notable gains in recent quarters, underscoring its growing role in reshaping global trade dynamics. Global merchandise trade volume is estimated to have risen by 3.3 per cent year-on-year in 2025, despite higher tariffs and trade policy uncertainty, it added. “United States merchandise imports saw a temporary surge in early 2025, driven by intensified front-loading ahead of anticipated tariff hikes, particularly for products such as pharmaceuticals and machinery.” It said among developing economies, China continued to lead export growth, supported by strong shipments of manufactured and industrial goods, though notable export gains were also achieved elsewhere, particularly in Africa. Export growth in Africa and Latin America was driven primarily by commodities. Electronics and machinery remained the primary drivers of merchandise trade expansion in 2025, fuelled by sustained global demand for semiconductors and AI-related components and equipment, it noted. According to the World Trade Organization, trade in AI-related goods grew by 20 per cent year-on-year in the first half of 2025. Pharmaceuticals and chemicals also recorded robust growth, partly reflecting the front-loading of United States imports, especially from the European Union. On the other hand, the report said trade in transportation equipment (including automobiles) stagnated over the same period, with United States imports declining by about 10 per cent year-on-year in nominal terms. The tariffs and other trade policy actions introduced in 2025 created significant uncertainty (particularly with the frequent suspensions, revisions, and exemptions), raising trade costs, unsettling markets, and placing particular pressure on developing economies, it underlined. The unpredictability of these policy shifts has complicated efforts to gauge their effects on trade flows and prices worldwide. Effects vary widely across countries, regions, and products, with the outlook continuing to evolve, it said. In addition to tariffs, several other measures have shaped trade dynamics in 2025, including export restrictions, port fees, and a surge in anti-dumping investigations. The number of such investigations reported to the WTO reached an all-time high in 2024, and early 2025 data suggest this trend is continuing. Meanwhile, the report said trade in services is estimated to have expanded by 5.3 per cent in 2025 in real terms, driven by robust growth across major segments. Growth is projected to remain solid in 2026, easing slightly to about 5 per cent. However, services trade continues to be dominated by developed economies, which account for about 70 per cent of global services export revenues, it added. Digital services and solid travel demand are expected to continue underpinning services trade growth. The rapid adoption of AI technologies is projected to further stimulate demand for digitally delivered services. The report said according to the WTO, AI could boost global trade by nearly 40 per cent between 2025 and 2040 through higher trade volumes of digitally deliverable services, lower operational costs in merchandise trade, and greater efficiency in service delivery. The report said growth in travel services has eased following the sharp post-pandemic rebound. International tourist arrivals are estimated to have grown by 5 per cent in 2025, supported by solid demand despite high travel costs and geopolitical risks. In the first nine months of 2025, more than 1.1 billion tourists travelled internationally, up 5 per cent from 2024 and 3 per cent above 2019 levels. EMERGING SHIFTS Higher United States tariffs and uncertainty over future market access prompted some realignment of global value chains in 2025, the report emphasized. While impacts vary across product categories and trading partners, export market diversification has accelerated, particularly among the major trading partners of the United States, it said. China largely offset reduced exports to the United States by increasing shipments to other regions, notably the Association of Southeast Asian Nations (ASEAN) region and Africa. Exports from the European Union also proved resilient as trade flows strengthened with regional partners such as Switzerland and the United Kingdom, said the report. Canada, whose exports to the United States fell by 3 per cent year-on-year in the first half of 2025, increased exports to Africa, the ASEAN countries, the European Union, and the United Kingdom, partially offsetting the decline in exports to the United States. Mexico and many other Latin American economies continue to rely heavily on the United States market, with only marginal changes in export structures observed in 2025, it added. Value chain adjustments remain closely linked to evolving dynamics in the maritime trade and shipping industry, said the report, noting that growth in the distance covered by cargo has outpaced growth in traded volumes since 2023. Meanwhile, it said the volume of cargo travelling through the Suez Canal has yet to return to pre-2023 levels, even though conditions along key routes have largely stabilized, suggesting that global supply chains are still adapting to geopolitical and security disruptions. However, the prevalence of longer shipping routes points to reduced logistical efficiency and potentially higher costs for firms, it suggested. The report said that current short-term trade realignments are unfolding within a broader context of structural transformation in global commerce – marked by technological innovation, the rise of services, re-configuration of trade partnerships, and close linkages with international finance. “While some of the effects of these adjustments are already visible in changing trade flows and shipping patterns, others will materialize gradually as long-term structural developments reshape value chains.” This ongoing re-configuration creates new opportunities for integration, particularly for developing countries seeking to enter emerging segments and diversify their export markets, the report concluded. +
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