By Paul Hannon

Global trade flows will likely fall this year following U.S. President Trump's latest round of tariff increases, while fresh rounds of retaliation would deepen the economic impact, the head of the World Trade Organization said.

Trade in goods rebounded last year after a 2023 decline, and the WTO had expected to see a further pickup this year. But that outlook has changed following the sweeping rise in duties on imports announced by the U.S. Wednesday.

"While the situation is rapidly evolving, our initial estimates suggest that these measures, coupled with those introduced since the beginning of the year, could lead to an overall contraction of around 1% in global merchandise trade volumes this year," said Ngozi Okonjo-Iweala, the WTO's director general.

In a statement, she added that trade flows would fall further if the U.S. were to respond to any retaliation with further tariff increases.

"I'm deeply concerned about this decline and the potential for escalation into a tariff war with a cycle of retaliatory measures," she said.

Trade diversion is a possible source of further escalation.

If businesses in China, for example, find that demand for their products has weakened because tariffs have made them more expensive for American buyers, they will likely try to find customers elsewhere, and lower their prices to do so.

But that could prompt the European Union and other countries to contemplate measures to limit the inflow of Chinese goods, opening up a new front in the trade conflict.

Okonjo-Iweala called on members of the dispute-resolution body to act "responsibly" in response to trade diversion "to prevent trade tensions from proliferating."

The WTO rarely comments on the actions of one of its members, but said other countries "have reached out to us" for an assessment of the likely impact of the new tariffs.

"The recent announcements will have substantial implications for global trade and economic growth prospects," Okonjo-Iweala said.

Write to Paul Hannon at paul.hannon@wsj.com

(END) Dow Jones Newswires

April 03, 2025 12:35 ET (16:35 GMT)

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