- Trade policy uncertainty has become a major source of global instability, according to the UN Trade & Development global trade update for Sept 2025
- Sudden shifts in tariffs, subsidies or restrictions fuel volatility, the UN body added
- With weakened rules and fierce competition for critical raw materials, uncertainty has skyrocketed to record levels
Trade policy uncertainty has become a major source of global instability, according to the UN Trade & Development global trade update for Sept 2025. Sudden shifts in tariffs, subsidies or restrictions fuel volatility, the UN body added.
Policy changes in the biggest economies can send shockwaves across the globe. This results in disrupting suppliers, manufacturers and markets.
As an example, the recent policy shifts in the US show this effect. As the world’s largest importer, even modest changes in US trade policy reshape supply chains and alter global trade flows.
Moreover, policy uncertainty is hardly ever accidental. Governments recalibrate trade rules in response to domestic pressures and “sometimes use ambiguity to gain leverage in negotiations,” said UNCTAD.
For decades, multilateral and regional agreements discouraged abrupt shifts and stabilized flows, with uncertainty limited to such episodes as Brexit, the COVID-19 pandemic, or US-China trade tensions.
This is not the case this year.
With weakened rules and fierce competition for critical raw materials, uncertainty has skyrocketed to record levels.
Trade policy uncertainty weighs on the global economy in three ways, according to UNCTAD. These are:
- Higher costs, slower growth. Companies must carry excess inventory, hedge against losses and reconfigure supply chains, raising costs and discouraging investment.
- Risks to financial stability. Sudden shifts unsettle exchange rates and weaken investor confidence, capital flows and credit conditions.
- Erosion of trust. Weaker rules and unilateral actions fuel retaliation, making global cooperation harder.
Pre-emptive reactions are often triggered by uncertainty over when measures will apply. Companies rush shipments before tariff deadlines – a practice known as “front-loading” – often switching to faster and more costly forms of transport.
It should be noted that front-loading is more feasible for high-value, low-volume goods – the kind advanced economies export the most. By contrast, least developed countries rely more on exports of bulky, low-value commodities that are harder to front-load.
This can be seen in air shipments to the US, which jumped nearly 10% the first quarter of 2025 compared to the same period in 2024.
Imports to the US surged in the first quarter as goods were front-loaded, then dropped sharply in the second quarter, when the Trump administration’s tariffs took hold.
This shows that uncertainty itself can be more disruptive than the tariffs.
Diversification is the key for resilience, UNCTAD pointed out.
Two factors can reduce vulnerabilities: diversified export markets and participation in trade agreements.
Firms with multiple markets can redirect shipments when one closes, cushioning losses.
Countries with broader export bases offset downturns in one region with gains elsewhere.
Trade agreements provide rules and dispute settlement mechanisms, reducing shocks and encouraging long-term investment.
China’s recent trade patterns show the value of diversification. In the second quarter of 2025, China’s exports to the world rose even as shipments to the US fell, showing how multiple markets can cushion the impact of unpredictable policies.
Predictability is essential for international trade. The report calls for practical steps to restore stability and strengthen resilience:
- Advance notice of policy changes so firms and partners can adapt in time.
- Clear, data-driven trade measures to give investors and businesses confidence.
- International coordination through UNCTAD, the World Trade Organization and others to avoid retaliatory cycles.
- Stronger trade agreements with effective dispute settlement to reduce shocks.
- Diversified export markets to cushion the impact of sudden shifts.
Stable and predictable trade policies are critical not only for sustaining growth but also for keeping development on track in the most vulnerable economies, the UNCTAD update concluded.
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