Global trade’s rollercoaster ride

Firms have adapted supply chains to take advantage of existing trade preferences and have built up inventories to manage uncertainty, limiting the pass-through of higher costs to consumers. Services trade — largely insulated from the latest increases in trade costs — has also remained robust, particularly in business and information services.

Even so, leading indicators point to a loss of momentum in global trade. Surveys of new export orders indicate softening external demand, as the temporary boost from front-loaded imports ahead of tariff hikes in April and August begins to fade. The Purchasing Managers’ Index for global manufacturing shows that new export orders slipped back into contractionary territory in April, following a brief rebound in March 2025.

 

Developing economies: More integrated, more exposed

EMDEs today are far more integrated into global trade than they were at the start of the 21st century. Over the past decade, they have accounted for nearly 40% of global trade, up from 25% in the early 2000s. Between 2000 and 2024, world trade in goods and services nearly quadrupled, with EMDEs contributing over 40% of that increase.

Perhaps most notably, EMDEs now trade increasingly with one another. As of 2024, about 60% export more to other EMDEs than to advanced economies — up from 28% in 2000. Their goods exports to fellow EMDEs have consistently outpaced those to advanced economies. These deepening linkages within EMDEs have become a central pillar of the global trading system.

 

Renewed momentum in trade agreements

For the first time in the 2020s, momentum returned this year to bilateral and regional negotiations. More than a dozen agreements were signed, with the total likely to rise by December, roughly double the average annual number recorded during 2020–24 and above the average of the 2010s. Governments are seeking to diversify partners, strengthen regional supply chains, and reduce vulnerability to global fragmentation.

The Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) continues to expand, attracting new members and applications. The African Continental Free Trade Area (AfCFTA), which took effect in 2019 with 22 signatories, has since expanded to include 55 countries, making it the world’s largest free-trade area by number of participants. Its goal is ambitious: to create a single continental market for goods and services.

Meanwhile, the European Union has signed agreements with Mercosur, Mexico, and Indonesia and advanced negotiations with India; European Free Trade Area countries have concluded new agreements with several emerging markets; China and the Association of Southeast Asian Nations (ASEAN) have upgraded their free trade agreement; and the United States has pursued selective deals designed to rebalance relationships and restore confidence among key partners.

The motivation behind this renewed momentum is clear. As global value chains are reconfigured, preferential trade agreements can help secure market access, enhance competitiveness, and attract investment. Indeed, trade among members of regional agreements has proved more resilient than trade outside them.

Still, challenges remain. Some agreements have not yet been ratified, and implementation lags have slowed tangible progress. Overlapping commitments and complex rules of origin can limit the effective use of preferences, creating a ‘spaghetti bowl’ of trade rules. The proliferation of divergent standards also risks further fragmenting the multilateral system. Yet, the renewed drive toward regional integration underscores a key reality: countries are not retreating from trade — they are adapting to a changing global landscape.

 

Policy priorities for EMDEs

In this uncertain environment, EMDEs need to pursue policies that sustain integration and enhance resilience. Four priorities stand out.

Embrace integration: Rather than resorting to tit-for-tat protectionism, EMDEs should deepen cooperation with willing partners. Recent regional initiatives demonstrate what is possible. If fully implemented, AfCFTA measures to facilitate trade and FDI could boost Africa’s exports by more than 30% and double intra-regional exports by 2035. Similarly, in the Asia-Pacific area, lower trade costs and liberalised rules of origin under the Regional Comprehensive Economic Partnership (RCEP) could increase trade among its 15 members by 12% and raise real incomes by 2.5% by 2035. Deep trade agreements — those that tackle behind-the-border barriers as well as tariffs — generate larger gains.

Reduce trade costs and improve domestic conditions: Non-tariff trade costs, in the form of red tape, logistical, and other difficulties, remain stubbornly high in EMDEs: equivalent to tariffs about 50 percentage points higher than they are in advanced economies. Investments in transport, ports, and digital infrastructure can narrow these gaps. Efficiency-raising reforms in customs procedures, logistics, and regulatory compliance can deliver quick wins. Lower trade costs translate directly into greater competitiveness and higher real incomes.

Employ industrial policy strategically and diversify: Industrial policy is making a comeback, but EMDEs need to deploy it judiciously. Interventions should be targeted, transparent, time-bound, and aligned with WTO rules. When well-designed, they can catalyse learning, foster innovation, and create jobs without distorting markets. Policy should also reflect the rapid expansion of services trade, particularly in digital, business, and information services.

Between 2005 and 2023, the value of services trade more than tripled (Figure 4). To seize these opportunities, EMDEs must invest in human capital and digital infrastructure, ensuring that workers have the skills demanded by a services-driven economy.