UNCTAD warns trade growth 1.5%

1/ UNCTAD forecasts global merchandise trade growth will slow to 1.5% in 2026, down sharply from recent years, as geopolitical tensions and policy uncertainty curb flows. The UN agency released its latest outlook on May 20, citing risks from trade fragmentation and regional conflicts. 2/ This projection marks a steep deceleration—global trade expanded by 3.4% in 2024 and an estimated 2.7% in 2025, per UNCTAD data. Services trade may fare better at 4.5% growth, but goods face headwinds from disrupted supply chains and protectionism. The report warns of "a more fragmented and less predictable trading system." 3/ Tariffs are a key drag. A 2025 supply-chain survey found 96% of U.S. small and medium-sized businesses (SMBs) reported impacts from new duties, including revenue losses, delayed shipments, and customer complaints. Over half said tariffs raised costs by more than 10%. 4/ U.S. tariffs introduced in 2025 created thousands of new duty brackets, slashing cost predictability, according to IndexBox research. Firms shifted to "tariff-optimized" sourcing—rerouting via lower-duty countries like Vietnam or Mexico instead of chasing pure efficiency. This behavior spiked imports through tariff-friendly lanes by up to 25% in affected sectors. 5/ For manufacturers, tariffs evolved from a simple cost line to a core planning challenge. Sourcing now factors duty rates alongside lead times and quality; inventory builds precautionary stocks to dodge rate hikes; working capital ties up in higher holdings. IndexBox calls this "trade policy as the new supply-chain constraint." 6/ U.S. SMBs exemplify the strain: 62% changed suppliers, 41% faced stockouts, and 35% passed costs to customers, per the survey. Larger firms adapted faster with nearshoring, but SMBs—making up 99% of U.S. exporters—struggle with compliance and cash flow. 7/ Broader UNCTAD analysis ties this to geopolitics: U.S.-China tensions, EU carbon border taxes, and conflicts in Ukraine and the Middle East fragment routes. South-South trade, now 35% of total, grows faster but can't offset Northern slowdowns. Developing economies face 1.2% goods growth. 8/ What drove the 2025 tariff surge? U.S. rules under the Trump administration expanded Section 301 duties on $500B+ of imports, adding 10-60% rates on steel, EVs, and semiconductors. Retaliation hit U.S. ag exports; global ripple effects cut trade volumes 2-3%, IMF estimates. 9/ Forward view: UNCTAD sees risks tilting downside if elections in the U.S., EU, and elsewhere escalate barriers. Upside hinges on de-escalation and supply-chain resilience tech. Watch WTO talks in Abu Dhabi this fall for signals on reform. Full report at unctad.org.