New U.S. tariffs could shrink global trade by 1%

The World Trade Organization has cautioned that new U.S. tariffs may lead to a roughly 1% decline in global merchandise trade volumes this year. WTO Director-General Ngozi Okonjo-Iweala warns of the risk of a tariff war and economic repercussions. However, the WTO chief pointed out that despite these new measures, the majority of global trade still operates under the organization’s Most-Favored-Nation (MFN) terms.

World Trade Organization (WTO) chief Ngozi Okonjo-Iweala cautioned on Thursday that U.S. President Donald Trump’s broad tariff measures could lead to a roughly 1% decline in global merchandise trade volumes this year. She expressed deep concern over this decline and the risk of it escalating into a tariff war, triggering a cycle of retaliatory measures that could further shrink global trade.

“While the situation is rapidly evolving, our initial estimates suggest that these measures, coupled with those introduced since the beginning of the year, could lead to an overall contraction of around 1 percent in global merchandise trade volumes this year,” the World Trade Organization director-general stated.

The WTO administers 74% of global trade, down from around 80% at the beginning of the year due to recent tariffs, according to the organisation.

President Trump had introduced a series of unexpectedly harsh tariffs on Wednesday, affecting nations worldwide. 

Okonjo-Iweala warned that these actions could have significant consequences for global trade and economic growth. The new tariffs impose a 10% duty on all imports, with even higher rates targeting key trade partners such as China and the European Union. These levies add to those already enforced since Trump returned to office in January.

WTO chief also noted that this projected decline represents a nearly four-percentage-point drop from the WTO’s earlier forecast and urged WTO members to handle the resulting tensions responsibly.

She said “Many members have reached out to us, and we are actively engaging with them in response to their questions about the potential impact on their economies and the global trading system,” 

“Trade measures of this magnitude have the potential to create significant trade diversion effects. I call on Members to manage the resulting pressures responsibly to prevent trade tensions from proliferating,” she added.

WTO chief emphasized that despite these U.S. actions, the majority of global trade continues to follow the WTO’s Most-Favoured-Nation (MFN) principle, which upholds fair and equal treatment among trading partners.  She urged WTO members to stand together in protecting these fundamental trade rules. Additionally, she underscored the WTO’s vital role in such moments, acting as a platform for dialogue, mitigating trade disputes, and ensuring a stable and transparent global trading environment.

The Trump tariffs- fuelling a severe global trade war

Earlier, on Wednesday, April 2, 2025, U.S. President Donald Trump announced a series of harsh tariffs targeting countries worldwide, including some of America’s closest trading partners, a move that risks triggering a devastating trade war. About 60 countries will be hit with higher rates of up to 50%, including Cambodia, Vietnam, Malaysia and Bangladesh.

President Trump dealt some of the toughest measures to what he referred to as “nations that treat us badly,” imposing a 34% tariff on goods from China, 27% on India, 20% on the European Union, and 24% on Japan. For all other countries, including Britain, he declared a “baseline” tariff of 10%.

Countries worldwide have threatened to escalate a trade war with the United States as President Donald Trump’s sweeping tariffs fueled concerns over rising prices in the world’s largest consumer market and a potential global economic downturn. 

Trump’s announcement on Wednesday triggered a sharp decline in global financial markets and faced strong backlash from leaders confronting the unraveling of decades of trade liberalization.

Investment bank JP Morgan now estimates a 60% likelihood of the global economy slipping into recession by year-end, an increase from its previous 40% projection.

Canadian Prime Minister Mark Carney criticized the United States, stating that it had forsaken its long-standing role as a leader in international economic cooperation. He announced a limited set of countermeasures.

China vowed to retaliate against Trump’s 54% tariffs on imports from the world’s second-largest economy, while the European Union, hit with a 20% duty, also pledged a response. French President Emmanuel Macron urged European nations to halt investments in the United States.

Some other US trading partners, including Japan, South Korea, Mexico, and India, stated they would temporarily refrain from retaliation while pursuing concessions. However, Washington’s allies and adversaries both have cautioned that the move could deal a severe blow to global trade.

IMF Managing Director Kristalina Georgieva urged Washington and its trading partners to address trade tensions and minimize uncertainty. She emphasized that the tariffs pose a substantial risk to the global economy, especially amid sluggish growth.

It is important to note that a White House document released on Friday indicated that the Trump administration has revised its reciprocal tariffs for at least 14 countries, including India. India’s tariff rate was initially stated as 27%, whereas Trump had previously announced it as 26% on April 2. However, the latest annex document confirms that the rate has been adjusted down to 26%. Other countries with revised tariffs are South Korea, Botswana, Cameroon, Malawi, Nicaragua, Norway, Pakistan, the Philippines, Serbia, South Africa, Thailand, Vanuatu, and the Falkland Islands.