The world of global trade is undergoing a significant transformation, with over 90% of it now heavily reliant on financial mechanisms. This shift has profound implications, offering new opportunities while also exposing vulnerabilities.
Let's delve into the details. The year 2025 started with a promising rebound in world trade, with shipments surging as businesses raced to beat new tariffs in the US. Additionally, investments in artificial intelligence provided a much-needed boost. However, when we remove these temporary factors, the growth trajectory appears less optimistic. Trade growth in the first half of the year drops to a range of 2.5% to 3%, and a slowdown is anticipated in the coming years.
This trend is reflected in the broader economy. The Trade and Development Report 2025 projects a slowdown in global economic growth, dropping from 2.9% in 2024 to 2.6% in both 2025 and 2026. This is significantly lower than the pre-pandemic trend of 3% and far below the robust 4.4% average growth seen before the 2008-2009 financial crisis.
Major economies are not immune to this slowdown. In the US, economic growth is expected to slow to 1.8% in 2025 and further to 1.5% in 2026. China, too, is experiencing a slowdown, with growth projected to fall from 5% in 2025 to 4.6% in 2026, down from an average of 6.7% in the pre-pandemic years.
The resilience observed at the beginning of the year now seems fragile. Trade and finance are increasingly intertwined, with every shipment, container, and trade route backed by a complex financial network. Today, more than 90% of world trade relies on trade finance, with banks, payment systems, and financial instruments playing a pivotal role in determining trade dynamics.
This tight link between trade and finance has made trade more sensitive to financial factors such as interest rate changes and shifts in investor sentiment. The impact is evident in food markets, where over 75% of major food-trading companies' income now comes from financial operations like agricultural derivatives, rather than from the physical movement of agricultural products.
The growing influence of finance in trade brings challenges, particularly for developing countries. Currency fluctuations make imports and debt more expensive, and shifts in global risk appetite can disrupt credit access. Moreover, financial volatility tends to disproportionately affect their markets.
When prices are driven by financial signals rather than real economic conditions, companies and producers in developing countries face an uneven playing field. The UN Trade and Development report highlights a widening gap between the increasing economic weight of developing countries and their limited role in global financial markets.
Developing countries now account for over 40% of global output and merchandise trade, and attract nearly 60% of global foreign direct investment (FDI). Yet, they hold only 25% of global financial market value. This disparity is further exacerbated by their smaller and less liquid capital markets, making it challenging for firms to raise capital. Many developing countries remain dependent on foreign banks, incurring higher and more volatile interest rates. While advanced economies typically borrow at 1% to 4%, many emerging markets pay 6% to 12% for similar government bonds.
These higher costs hinder investment in critical areas such as infrastructure, innovation, and climate resilience. To strengthen resilience, targeted reforms are necessary. The Trade and Development Report 2025 outlines practical measures to reduce financial vulnerability and align trade, finance, and development. These include fixing the multilateral trade dispute system to enforce rules and reduce uncertainty, closing data gaps on trade and investment statistics for better policy coordination, and reforming the international monetary system to limit harmful currency and capital flow swings.
Additionally, strengthening regional and domestic capital markets can enable developing countries to access affordable long-term finance. Improving transparency in commodity trading and expanding access to affordable trade finance, particularly for small businesses, is also crucial.
True economic resilience requires a holistic approach that connects trade, finance, and sustainability. It is imperative that developing countries have the agency to shape global economic shifts, rather than merely adapting to them.
What are your thoughts on this evolving landscape of global trade and finance? Do you think these proposed reforms are sufficient to address the challenges faced by developing countries?
