The global trading system is navigating its most turbulent period since the Great Depression, with U.S. tariffs reaching their highest level in nearly a century, according to the World Bank’s new Global Economic Prospects report. While the global economy has so far shown surprising resilience, the report warns that the full weight of these trade barriers is yet to be felt.
The analysis details how the average effective U.S. tariff rate surged to approximately 17 percent by late 2025. This followed a period of intense policy uncertainty, including the reinstatement of broad reciprocal tariffs and additional country and sector specific measures. While this rate is below the estimated peak of 28 percent in April, it represents a fundamental shift in the global trade landscape.
Much of the economy’s resilience in 2025 was due to a massive front-loading of imports, as businesses rushed to bring goods into the U.S. ahead of tariff hikes. This created a temporary boom in trade, particularly from countries facing higher duties. However, this effect is now unwinding. U.S. goods imports slowed sharply in the second half of 2025, with a notable contraction from countries subject to the highest tariffs.
The report projects global trade growth to decelerate to just 2.2 percent in 2026, down from an estimated 3.4 percent in 2025. The delayed pass through of tariff costs to consumers and businesses is expected to increasingly weigh on demand. While the initial impact on U.S. goods inflation was muted by inventory build ups and firms absorbing some costs, prices for both imported and domestically produced consumer goods have begun to rise since mid 2025.
“The full impact from higher tariffs is expected to unfold gradually,” the report notes, partly because goods already in transit were exempt, creating a lag between tariff announcements and their economic effect.
Countries with diversified export destinations have fared better, showing improvements in new export orders. In contrast, those with more concentrated export markets, heavily reliant on a single large partner, have experienced declines. This pattern suggests that the ability to pivot to new markets is a crucial buffer in the current environment.
Looking ahead, the risks remain tilted to the downside. While tensions have eased somewhat since mid 2025 following new bilateral trade agreements, uncertainty persists. The World Bank warns of a significant risk that trade tensions could re escalate, especially as higher tariffs redirect exports to third countries, potentially prompting those nations to seek protection for their own domestic industries.