Free trade, fraught times

In the world of trade, the past few years have been anything but quiet. Businesses have contended with a series of disruptions, from the trade wars initiated during Donald Trump’s first term in office, to the snarl-ups of the covid-19 pandemic and the shockwaves caused by the wars in Ukraine and the Middle East. Sporadic disruptions, such as collapsed bridges, disrupted waterways and natural disasters intensified by climate change, have added a layer of complexity for supply-chain managers. These have unfolded against a rising appetite for protectionism, notably in the US, and are reshaping the contours of trade itself, ushering in a new era of globalisation (see Box 1).

The trouble is unlikely to dissipate. A particular challenge for 2025 stems from the re-election of Mr Trump, a self-described “tariff man”, as president of the United States. Protectionist policies are expected to spike, with suggestions of tariffs of 10%-20% on all American imports, with much higher rates applied to perceived foes. Although these sweeping measures may take time to materialise—if they do at all—countries are already bracing for what could become one of the most damaging trade wars, marked by tit-for-tat tariffs, since the 1930s.

China, the world’s second-largest economy and prime economic competitor to America, is the main target of Mr Trump’s approach to global trade. The new administration has suggested applying a 60% tariff on all Chinese goods, five times the current average rate. Other countries will also be affected. Amid Mr Trump’s re-election, BDI—Germany’s main industry association—warned that, with Mr Trump back in the White House, “the tone will become harsher and the protectionist course will consistently be pursued”. The European Union (EU) will face the daunting task of navigating the Sino-American stand-off. The EU will have to do this while facing its own complex relationship with China, with whom it needs to uphold vital trade ties as it addresses unfair competition.

One relative beneficiary might be non-aligned countries—those steering geopolitical divides without aligning with either side—as global supply chains shift towards “safer” geographies. However, non-aligned countries, particularly those in Asia and Latin America, will also confront a more complex mix of risks and opportunities. Mr Trump has been hawkish on tariffs towards Mexico, America’s now-largest trading partner and primary beneficiary of diversification away from China.

Despite the gloomy geopolitics, global trade still shows signs of resilience. EIU estimates that trade in goods increased by 2.5% in 2024, and forecast that it will increase by 3.3% in 2025 and 3.1% in 2026.¹ Similarly, in October, the World Trade Organization (WTO) updated its global merchandise trade growth 2024 forecast to 2.7% —a slight uptick from earlier projections.² However, the WTO has tempered its optimism by revising its 2025 growth forecast to 3% from 3.3%, citing rising geopolitical tensions and economic uncertainties as substantial risks.³

Trading on thin optimism

Businesses are apprehensive about the turbulence ahead. The executives surveyed in our Trade in Transition research programme share a mix of pessimism and cautious optimism. Economic concerns loom largest, with about 33% of business leaders worldwide citing a protracted period of high inflation and interest rates as their chief concern (see Figure 1). Projections from EIU suggest that global inflation will moderate to 4.5% in 2025 and 3.7% in 2026, compared with 6% in 2024. However, the International Monetary Fund warns that price pressures—particularly in the services sector—remain stubbornly high.^4,5 A potential global tariff war could stoke further inflation in coming years.

Compounding macroeconomic concerns, 29% of surveyed business leaders worry about downturns in important markets. Their caution is justified: EIU forecasts that global GDP growth will remain steady at an average of 2.7% between 2025 and 2029.⁶ The World Bank predicts that 80% of the world’s population is likely to experience slower growth in this period compared with the pre-pandemic decade.⁷ However, there is a silver lining: economic stability is a source of optimism, with about 34% of executives citing increased stability and growth as a main reason for their positive trade outlook over the next two years (see Figure 2).

Government trade policy is another focal point of business sentiment in 2025. On the positive side, nearly 24% of businesses express that they are optimistic due to increased attention and support from national governments. However, 15% of respondents are worried about the prospect of rising government protectionism. These dual business sentiments reflect a world where trade is increasingly a tool for domestic politics as support for multilateralism wanes.

Geopolitical tensions are casting a shadow over the future of global trade. Heightened geopolitical uncertainty—including ongoing conflicts and trade tensions—is cited by 25% of executives as a primary source of pessimism for the next two years. This reflects their experience of trade disruptions caused by the wars in Ukraine and the Middle East, but possibly also a sober vision of the world to come. It is one where the fragmentation of global trade into competing blocs intensifies, making instability the new normal. Daniel Enache, a director at Dacia, a Romanian car manufacturer, is clear on this: “Disruption is becoming the new constant; previously, disruptions happened once a decade, now we face several every year.”

When disruption persists, resilience becomes a must. As Jan Havenga, professor of logistics at Stellenbosch University, notes, “Shocks, whether from climatic or geopolitical events, underscore the need for resilient supply chains that can withstand both external disruptions and sustainability demands.” The forces shaping the world of trade invite a closer look at what businesses are—and should be—doing in 2025. This report provides it.