Today’s global economic landscape is defined by an unprecedented level of volatility and uncertainty, underscoring a new era of trade uncertainty that has profound implications for businesses and governments alike. This sentiment has been echoed in the World Economic Forum’s (WEF) latest Chief Economists Outlook report, where a staggering 79% of economists surveyed believe that current developments indicate a “long-term structural shift” in the global economy, a notable increase from 61% reported in late 2024.
These shifts are being driven by rising geopolitical tensions and a resurgence of economic nationalism, prompting a reevaluation of the foundational pillars established in the aftermath of World War II. As these elements converge, the outlook for global trade becomes increasingly precarious, highlighting the need for quick and decisive action from policymakers and business leaders.
One of the core areas of concern in this new era of trade uncertainty is the fluctuating trade policies of the United States. A dramatic announcement in early April regarding increased import tariffs—specifically a baseline rate of 10% on a wide array of global goods—sent shockwaves through financial markets, catalyzing immediate volatility. A subsequent 90-day pause on these tariffs provided only a temporary relief, leaving many to ponder the post-pause scenario. The report cautions that the current political climate in the US, characterized by erratic decision-making, casts a long shadow over the predictability and reliability of economic policy.
The report indicates that trade-related uncertainty has reached levels not seen since 1960, surpassing even the tumultuous peaks experienced during the COVID-19 pandemic. Such an environment raises critical questions for policymakers and business leaders about how to navigate these turbulent waters.
Trade Ramifications
The implications of this trade uncertainty are severe and widespread. An alarming 77% of chief economists anticipate that the introduction of higher tariffs will lead to an uptick in inflation, while an even more significant 89% predict a stagnation or outright decline in global trade volumes. The World Trade Organization (WTO) supports this forecast, projecting that global merchandise trade volumes will contract by 0.2% this year as a direct result of threatened tariffs.
While a majority of economists (53%) believe that the economic ramifications of a potential trade war will primarily affect the United States and the countries targeted by these tariffs, 32% warn of a more extensive drag on the global economy. Notably, none of the economists surveyed expected that these tariffs would be without economic consequences.
Further backing these somber predictions, the OECD Economic Outlook released in early June downgraded global growth projections. Forecasts now suggest a decline in global growth from 3.3% in 2024 to a modest 2.9% in 2025 and 2026. The ripple effects of this weakened economic trajectory are anticipated to reverberate globally, impacting incomes and job growth significantly.
Although the OECD still projects that inflation will eventually align with central bank targets by 2026 in most countries, the timeline for achieving these goals has been extended. For nations heavily affected by tariffs, inflation may initially rise before it begins to taper off.
The report highlights the growing risks linked to protectionism and trade policy uncertainty, advocating for a more strategic approach by stakeholders. According to OECD simulations, adding further tariffs could exacerbate global growth prospects and contribute to inflationary pressures.
Political Polarization and Economic Nationalism
An additional layer complicating the current landscape of trade uncertainty is the increasing polarization in political discourse and the rise of economic nationalism. A striking 95% of economists surveyed for the Chief Economists Outlook expect this political polarization to lead to “further suboptimal economic decision-making” throughout the year. Moreover, 98% predict an acceleration of "geoeconomic fragmentation," with trade and investment flows increasingly aligning along political and ideological lines.
Geographically, the economic forecasts vary. In North America, countries like Mexico and Canada are particularly vulnerable to shifts in US economic policy, due to deep trade integration. Around 80% of chief economists predict that the US will experience “weak” or even “very weak” growth for the remainder of the year—a far cry from earlier, more optimistic projections. This downturn is accompanied by rising inflation and a weakening US dollar.
In contrast, Europe, while grappling with its own set of challenges, shows tentative signs of improvement. An anticipated relaxation of fiscal constraints, especially in Germany aimed at boosting infrastructure and defense spending, is viewed by half of the economists as a catalyst for growth. Support from the European Central Bank through ongoing monetary easing also plays a role in this cautious optimism.
Conversely, in Asia, China’s ambitious GDP growth target of 5% for 2025 faces significant barriers, and only a third of economists express confidence in its attainment. The ongoing trade tensions with the US have kept substantial tariffs in place, contributing to deflationary pressures in the region.
As Latin America braces for weak growth against a backdrop of tight global financial conditions and geopolitical tensions, the Middle East and North Africa remain divided. Fluctuating oil prices are adding economic strain, particularly in oil-exporting countries. However, Sub-Saharan Africa demonstrates a relatively more optimistic outlook, as many economists predict moderate to strong growth, despite ongoing challenges like infrastructure shortages.
Lastly, South Asia, particularly driven by India’s dynamic economic landscape, presents a noteworthy exception. Despite regional tensions, this region is expected to experience robust growth, adding a glimmer of hope amid the broader context of trade uncertainty.
In conclusion, the new era of trade uncertainty calls for a concerted effort from policymakers and business leaders to adapt to the evolving landscape. The uncertainty generated by fluctuating trade policies, geopolitical tensions, and economic nationalism necessitates greater coordination and strategic investment in transformative technologies. By navigating these economic headwinds thoughtfully, there is potential for fostering long-term resilience and growth in an ever-changing global economy.
