The World Trade Organization slashed its forecast for merchandise trade this year as soaring US tariffs and broader uncertainty hammer international commerce.

In its new forecasts, the Geneva-based WTO expects the volume of world merchandise trade to decline by 0.2% in 2025 — almost three percentage points lower than it would have been without the US-led trade war, marking a dramatic reversal from expectations at the start of the year. Trade is forecast to rebound by 2.5% in 2026.

This year’s contraction will be even worse if the US pushes ahead with threatened higher levels of so-called reciprocal tariffs. “Together, reciprocal tariffs and spreading trade policy uncertainty would lead to a 1.5% decline in world merchandise trade in 2025,” the WTO said in its report Wednesday.

North American trade will be hardest hit while Asia and Europe will continue to see modest growth.

But the WTO warned that massive disruption in US and China trade may see Chinese exporters looking for new markets.

“The disruption in US-China trade is expected to trigger significant trade diversion, raising concerns among third markets about increased competition from China,” the WTO wrote.

Services trade will also be hurt. The WTO now sees commercial services growing by 4% this year and 4.1% in 2026, compared with 6.8% last year.