What’s Next for International Trade?

Despite the turmoil surrounding the U.S. tariffs, the outlook for global trade and economic activity is seemingly improving.

In its most recent Global Trade Outlook, the World Trade Organization (WTO) forecasted the world merchandise trade volume to increase by 2.4%, an upgrade from the 0.9% growth it saw in August. The International Monetary Fund (IMF) also upgraded its forecast for global GDP growth in its World Economic Outlook to 3.2%, up from 3% seen in July.

Have the economists overestimated the negative impact of tariffs on global trade?

Clearly, the world has avoided an all-out collapse in global trade like the one in the 1930s. Following the Smoot-Hawley tariff of 1930, the volume of international trade shrank by around two-thirds. Despite the similar tariff rates now and then, there are several important differences between the two episodes. Smoot-Hawley tariffs were introduced during the Great Depression, which means that the trade volume would have likely fallen regardless of tariffs. In addition, it led to an escalation in global trade barriers, with multiple countries increasing their tariffs in cycles of retaliation. In contrast, the Trump tariffs of 2025 were introduced in a reasonably healthy global economy, and we largely avoided the destructive retaliation cycles. The Trump administration also so far abstained from imposing the most economically destructive tariffs, such as those on semiconductors or on the North American automotive supply chains.

However, this tariff era is still young. The full impact might still be coming. The effects of tariffs on consumer prices have been slow to appear, as large inventories accumulated by companies allowed businesses to delay the price increases. As cost hikes materialize, the resulting decrease in consumer demand is likely to put further pressure on international trade. This delay was incorporated in the WTO’s Outlook. Despite the forecasted growth in 2025 trade, the WTO downgraded the forecast for 2026, and now expects trade to increase by only 0.5%, down from 1.8% seen in the August forecast.

While not insignificant, the anticipated slowdown in international trade growth does not appear to be catastrophic. But it is too early to say there is nothing to worry about. As demonstrated by the recent escalation in U.S.-China trade tensions over rare earth metals, the uncertainty for international trade remains high.