WTO: US Tariffs Could Cause Global Trade to Contract 1 Percent

JAKARTA, KOMPAS - The reciprocal tariffs of the United States have triggered various responses from global institutions. The World Trade Organization, or WTO, for instance, stated that U.S. tariffs would cause the global trade volume to contract by 1 percent in 2025.

The Secretary-General of WTO, Ngozi Okonjo-Iweala, stated that WTO is closely monitoring and analyzing U.S. tariff policies. Many WTO members are questioning U.S. policies that will impact the economy and the global trade system.

The WTO views the U.S. tariff policy as having significant implications for global trade and the prospects of global economic growth. The situation has continued to evolve rapidly following the U.S. announcement of reciprocal tariff policies.

"We demonstrated that the tariff policy, combined with the measures introduced earlier this year, could lead to a contraction in trade volume (negative growth) of approximately 1 percent from the previous projection," said Okonjo-Iweala in an official statement quoted on Saturday (5/4/2025).

Previously, the WTO recorded that the volume of global trade in 2024 grew by 2.7 percent year-on-year. The WTO also projected that the trade volume would grow by 3 percent in 2025.

The estimated growth of global trade in 2025 is a revision of the previous projection of 3.3 percent. This means that with the introduction of reciprocal tariffs announced by U.S. President Donald Trump on April 2, 2025, WTO potentially may lower the global trade growth projection again.

Okonjo-Iweala expressed concern over the decline in global trade and the potential escalation of a tariff war. This is because retaliatory actions involving high tariffs will cause global trade to decline even more sharply.

He also mentioned that there are still many countries that comply with the provisions of fairness and fairness of WTO tariffs, namely the most favored nation (MSN). However, due to US tariff policies and tariff retaliation from other countries, the implementation of MSN tariffs is expected to erode from 80 percent to 74 percent.

"I am also concerned that there will be significant trade diversion. WTO members must unite to maintain the implementation of MSN tariffs and prevent trade tensions from escalating," he said.

Meanwhile, on April 4, 2025, the United Nations Conference on Trade and Development (UNCTAD) stated that the world is entering a critical phase. US tariff policies threaten not only trade growth, but also investment and development progress, especially for the most vulnerable economies.

UNCTAD Secretary-General Rebeca Grynspan said that just 10 of the nearly 200 US trading partners account for nearly 90 percent of the US trade deficit. However, US tariff policies also target the least developed countries and small island developing states.

US tariff policies not only threaten trade growth, but also investment and development progress, especially for the most vulnerable economies.

Yet these countries account for only 1.6 percent and 0.4 percent of the US trade deficit respectively. They are clearly not going to be able to balance the trade deficit and generate significant revenue.

"Remember, many low-income countries are now facing a 'perfect storm' of worsening external conditions, unsustainable debt levels, and slowing domestic growth," he said in a press release.

Grynspan stressed that trade should not be another source of instability. It should serve global development and growth.

For business people and policy makers, uncertainty and unpredictability in trade and investment pose serious obstacles to growth and planning.

While trade reform is needed, Grynspan said, dialogue and negotiation must come first. Trade imbalances, concentrated profits and outdated rules must be addressed without hurting those least responsible.

Trade must not be another source of instability. Trade must serve global development and growth.

"This is a time for cooperation, not escalation. Global trade rules must evolve to meet the challenges of the times, but must continue to protect the most vulnerable," he said.

UNCTAD therefore calls on decision-makers to urgently reconsider tariffs imposed on vulnerable countries. If they continue, tit-for-tat tariffs could cause great suffering to millions of people.