Page 73 - CII-ARTHA

MARCH 2026

C. Trends in Trade are also depressing trade momentum. Since 2020,
approximately 18,000 new discriminatory trade measures
Global Tariff Uncertainties have been recorded globally , adding compliance burdens,
raising trade costs and increasing risk of fragmentation of
Global trade growth slowed in 2025 amid rising policy the supply chain. Amidst trade policy shifts and
uncertainty, weakening demand and increasing trade geoeconomic fragmentation, firms are diversifying
barriers. A key driver was the escalation in US trade policy, suppliers, near-shoring production, and vertically
with the imposition of broad-based tariffs on its trading integrating into value chains to secure inputs for
partners, prompting front-loading of shipments followed by a production. In the long run, this could lead to formation of
slowdown in volumes. The tariffs disrupted trade flows, global value chains which are less efficient as security and
raised costs and accelerated supply-chain adjustments geo-political considerations override the cost and
across regions. In response, several countries negotiated efficiency considerations.
bilateral arrangements with the US, securing tariff
reductions in exchange for investment commitments, market Quarterly merchandise export growth (y-o-y) in 2025
access and cooperation in areas such as critical minerals, shows marked divergence across major economies,
digital trade and intellectual property. On 20th February reflecting differences in global demand, exchange rate
2026, the US Supreme Court struck down the earlier tariff movements and trade policies. These trends are reinforced
measures, after which a temporary uniform tariff of 15 per by Nominal Effective Exchange Rate (NEER) movements,
cent was imposed pending further legislative approval. which also shifted sharply across countries, highlighting
the role of divergent monetary policy paths and evolving
risk perceptions in shaping external performance.
External Sector Shifts: Trade and
Exchange Rate Movements Export performance varied widely across

According to the WTO's Global Trade Outlook released in countries, highlighting uneven global
October 2025, world merchandise trade volume grew by demand and shifting competitiveness
2.4 per cent in 2025, which was more resilient than earlier across major trading economies
anticipated — the WTO revised its trade volume forecasts
multiple times during the year — largely because
exporters front-loaded shipments ahead of expected Merchandise export growth (y-o-y basis) by the US
tariff increases, boosting volumes in the first and third increased steadily throughout 2025, rising from 1.7 per
quarters of 2025. Trade contracted in the second quarter cent in Q1 to 6 per cent in Q2, and further jumped to 8.3
after the United States imposed its "Liberation Day" tariffs, per cent in Q3 and 10.9 per cent in Q4. This was
many of which were subsequently negotiated down or supported by bilateral trade agreements between US and
rolled back. As front-loading effects faded, growth some of its partners providing expanded market access
moderated in the final quarter. In 2025, trade growth for US exporters. Even though the dollar appreciated in
remained geographically uneven, with East Asia and the first half of 2025, the uptick in merchandise export
Africa among the strongest contributors. South–South growth, particularly in the second half of the year,
trade continued to expand, strengthening diversification coincided with a gradual weakening of the US dollar, with
as firms recalibrated supply chains amid tariff uncertainty NEER shifting from 5.3 per cent appreciation in Q1 to -3.6
and geopolitical risks. Technology-driven exports per cent (depreciation) in Q4. The depreciating dollar
boosted bilateral trade flows, particularly within Asia and improved export competitiveness supporting stronger
between Asia and the US, while traditional manufacturing external demand.
sectors, including automobiles, lagged.

Global trade remained resilient in 2025
but is expected to weaken in 2026 amid
slowing demand, rising trade barriers,
and geoeconomic fragmentation

Looking ahead, the WTO projects trade volume growth to
decelerate sharply to 0.5 per cent in 2026, weighed down
by fading front-loading effects, weakening demand, rising
geopolitical tensions and tariff risks. Elevated trade
barriers, including the growing use of non-tariff measures,

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