Trade tested by policy uncertainty and geopolitical shifts

The first half of 2025 has seen global trade continue its upward trajectory, albeit under the persistent shadow of “increasing trade policy uncertainty, ongoing geopolitical tensions, and a challenging global economic environment”, according to the latest UNCTAD Global Trade Update, which presents a picture of resilience amid significant headwinds.

Global trade expanded by an estimated $300 billion in the first half of 2025, despite a slower pace of growth.

The report notes a “gradual upward trajectory that began in the second half of 2023”, with both goods and services trade showing “consistent growth”. This expansion has been largely propelled by the strong performance of developing countries. However, the first quarter of 2025 marked a notable shift, as “developed economies outpaced developing ones in trade growth—primarily due to a surge in imports by the United States ahead of anticipated tariff increases, and robust export activity from the European Union”. In contrast, South-South trade remained relatively subdued, said the report, although Africa registered strong export growth.

Preliminary data from April and May indicate that China’s exports remained resilient, driven by rising intra-regional trade and trade with Africa.

Looking ahead, the UNCTAD nowcasts for the second quarter of 2025 point to continued growth in both goods and services trade. Preliminary data from April and May indicate that China’s exports remained resilient, driven by rising intra-regional trade and trade with Africa. Similarly, United States’ exports also increased in April. However, a significant downturn was observed in US imports, which “fell sharply quarter-over-quarter, reflecting the impact of newly imposed tariffs and the unusually high volume of imports in Q1, as businesses rushed to bring in goods ahead of the tariff increases.”

The report underscores that continued resilience in global trade will depend heavily on “policy clarity, geoeconomic developments, and supply chain adaptability” in the latter half of 2025. A looming concern is the expected slowdown in global economic growth in many regions, suggesting that “international trade may face slower growth”. Furthermore, the report said that potential imposition of higher tariffs in the US and the risk of broader trade conflicts pose “significant downside risks”.

China’s import growth was negative on both quarterly and annual bases, while the Russian Federation’s trade growth estimates showed a sharp contraction in the first quarter.

Mixed trade trends

The first quarter of 2025 presented a mixed bag for merchandise trade among major economies. The US experienced “strong import growth”, as importers raced to beat incoming tariffs. This anticipation of tariffs also helped to drive an increase in exports from several major economies, with exports from the European Union particularly strong in the first quarter of 2025.

Conversely, both India and the Republic of Korea saw their exports contract, though the latter remained among the top performers on an annual basis “on par with China”. China’s import growth was negative on both quarterly and annual bases, while the Russian Federation’s trade growth estimates showed a sharp contraction in the first quarter.

In Q1 2025, merchandise trade growth was predominantly driven by developed economies. Imports by developed countries grew by about 4%, while imports in developing countries declined over the quarter. This trend marks a divergence from the previous 12 months and the longer-term pattern, where “export growth in developing countries significantly outpaced that of developed economies”.

South-South trade growth was also below average in the first quarter, though it maintained relative strength over a 12-month period. Excluding East Asian economies, South-South trade contracted during Q1 2025 and was comparatively weaker on an annual basis, said the report.

Bilateral imbalances in goods trade among major economies “remain high and, in most cases, have widened over the last quarter”

Widening imbalances

The report highlights a continued widening of global imbalances in goods trade during recent quarters, a pattern largely driven by a growing trade deficit in the US in the first quarter. Other major deficit economies, including India, Japan, and the United Kingdom, recorded narrowing trade deficits. Among surplus economies, China registered a large and expanding trade surplus, and the European Union also saw an increase in its surplus in the last quarter, said the report.

Bilateral imbalances in goods trade among major economies “remain high and, in most cases, have widened over the last quarter”, with the most significant imbalances observed between the US and China, the US and the European Union, and the European Union and China. The US also maintained significant trade deficits with Mexico and Vietnam, while China’s primary trade deficits were with Australia and the Taiwan Province of China.

Geoeconomic factors continue to exert significant pressure on bilateral trade patterns, impacting trade between major economies and their relationships with other partners. However, some of these shifts “may be stabilizing”, said the report. For instance, over the past 12 months, trade interdependence between China and the US has shifted “only marginally”.

Trade growth in the first quarter varied considerably across sectors. General manufacturing, particularly chemicals and pharmaceuticals, recorded growth rates well above the global average, while trade in communication equipment saw a sharp decline. Over a 12-month period, however, the strongest gains were in office equipment and pharmaceuticals, while trade in energy products and road vehicles remained “relatively weak” both quarterly and annually.

Chemicals saw a remarkable 20% quarterly growth and 7% annual growth. Pharmaceuticals also demonstrated strong performance with 15% quarterly and 17% annual growth. In contrast, communication equipment experienced a quarterly decline of 13%, though it still managed 2% annual growth. Energy products saw a 1% quarterly decline and a 7% annual decline, while road vehicles declined by 4% quarterly and 2% annually.

Source: Baltic Exchange