What's Happening?
The United Nations Conference on Trade and Development (UNCTAD) has reported that the unpredictability of U.S. trade policy is significantly impacting global trade. This uncertainty is compounded by existing tariffs and international political tensions, leading to increased costs and market instability. The World Policy Uncertainty Index reached record levels in early 2025, indicating heightened volatility. UNCTAD notes that firms are facing difficult decisions, such as stockpiling goods and rerouting shipments, which are exacerbated by the uncertainty. Developing economies are particularly affected, facing tightened credit and reduced investment opportunities.
Why It's Important?
The systemic uncertainty in trade policy is affecting global economic stability, with developing countries bearing the brunt due to their limited financial and logistical resources. This situation is causing fluctuations in currency exchange rates and increasing borrowing costs, further straining these economies. The lack of predictability in trade policies is undermining confidence, leading to unilateral actions and potential retaliations, which could disrupt supply chains. Restoring stability and predictability is crucial for businesses to invest and for countries to grow, emphasizing the need for clear and consistent trade policies.
What's Next?
To mitigate the impact of trade policy uncertainty, UNCTAD suggests diversifying markets and strengthening trade agreements. Providing businesses with prior knowledge of policy changes could reduce risks and enhance stability. The focus should be on restoring predictability to encourage investment and support economic development, particularly in vulnerable developing countries.
