We’re beginning to see the fallout from the increase in tariffs across the spectrum. Although there was a recent bump in imports as firms rushed to fill warehouses in advance of the levies, projections are indicating that trade volumes will fall this year. Lower trade is, in turn, contributing to projections for slower economic growth and higher prices than would occur otherwise. The decline in US Gross Domestic Product in the first quarter is a stark reminder of the consequences of trade disruptions.
The World Trade Organization (WTO) recently updated its global trade forecast. The new outlook indicates that, rather than expanding by about 3% in 2025 as thought until recently, global trade is now likely to drop. The big loser is North America, which is expected to be down by 1.7 percentage points.
Even with this sharply less favorable forecast, the WTO highlights notable risks that could make things worse. If tariffs persist and even ratchet up as countries reciprocate, trade could further deteriorate. Uncertainty related to trade policy is an additional concern. In fact, recent dramatic drops in cargo at US ports suggest that, unless progress is made in ending the impasse, we are rapidly approaching empty shelves and critical shortages.
