The Global Risks Report 2025: A World of Growing Divisions

Supercharged Economic Tensions (Part 1)
Global trade relations are tense and there is a risk of unpredictable and potentially sharp changes in trade policies worldwide. Geoeconomic confrontation (sanctions, tariffs, investment screening) ranks #3 for current (2025) risks according to the GRPS and #9 over a two-year horizon. This comes after trade tensions have already been rising steeply since 2017. According to Global Trade Alert, the number of harmful new policy interventions per year rose globally from 600 in 2017 to over 3,000 in each of 2022, 2023 and 2024.

The incoming US administration has suggested that it will implement higher tariffs on imports from all trading partners, often singling out China, as well as Mexico and Canada. While these statements may have been the opening gambits ahead of future negotiations covering trade and other issues, they undoubtedly are a signal to the rest of the world that deepening protectionism is on the agenda. 

US trading partners are considering retaliatory measures, as well as the timing for potentially implementing them. Over the next two years, there is a significant risk of escalating tariffs and other trade-related protectionism globally, which could accelerate broader decoupling between the United States and China, and their respective allies. While Cold War-style rhetoric between the United States and China could ramp up and fuel trade tensions between the two blocs, even the many countries that are not aligned with either West or East would find themselves affected by these tensions. 

In such an unfolding trade war scenario, initiatives currently underway could easily stall or come apart. For example, the EU’s Carbon Border Adjustment Mechanism is more likely to face retaliation from trading partners; and efforts to cooperate in the area of digital regulation will come up against hardening negotiating positions. These and other initiatives need ongoing collaboration to keep moving forward. 
 
Across-the-board tariffs 
In a worst-case scenario for tariff escalation over the next two years, governments would decide to impose tariffs not only on those countries/blocs imposing tariffs on them, but instead on all their trading partners. This widespread imposition of across-the-board tariffs globally would lead to a substantial contraction in global trade.

This scenario could originate from an escalation of the tariff conflict between the United States and China. The latter’s dominance of global export markets is at the core of the new US administration’s concerns. Not only in the United States, but manufacturing sectors worldwide have struggled to compete with Chinese products in a range of sectors, such as solar panels or electric vehicles. While Chinese exports slowed from 2022- 2023, their growth has remained strong over a five-year timeframe. 

If Chinese access to the US market is constrained by new tariffs, Chinese exports will be likely to flow to EU and other markets. But the EU has already started pushing back in selected areas of trade with China, for example imposing tariffs on electric vehicles imports from China for a period of five years in October 2024. If faced with a potential influx of Chinese imports redirected from the United States, the EU might impose new tariffs on Chinese imports. 

​Other regions such as Latin America could take similar approaches in the face of diverted imports as they aim to defend local industries. Over the next two years, this could lead to a pattern of rolling, progressive protectionism spreading worldwide, at different speeds in different sectors, going well- beyond bilateral tit-for-tat tariffs. Some governments would move more aggressively than others, and once the first countries impose across-the-board tariffs on their trading partners, more countries could quickly follow. 
 
Reference: The Global Risks Report 2025 20th Edition. World Economic Forum.