The UN trade and development's (UNCTAD) latest global trade update makes it clear. Policy uncertainty, more than just tariffs, is the primary disruptor. Businesses can usually adjust to rising costs when they're straightforward, but they struggle to plan when trade rules keep changing.
Per UNCTAD, the world is experiencing record levels of policy unpredictability, driven by geopolitics, competition between industries, and countries pursuing their own agendas through border measures.
What's the result? The report lays it out—nervous capital, disrupted supply chains, and a trust deficit that's eroding the once-solid foundations of international trade.
Global Tensions And Economic Challenges
This instability is rooted in the complicated dance between politics and economics. Governments are busy securing vital raw materials, addressing trade imbalances, and protecting their local industries. Simultaneously, they're using trade policies to meet security needs or environmental targets. This shift turns trade into a tool for political maneuvering instead of fostering economic cooperation.
Import volatility surged even before the new tariffs were announced in April. Companies reacted by accelerating shipments, increasing inventory, and switching to faster, more expensive air freight to get ahead of potential changes.
Interestingly, once tariffs were officially implemented, volatility decreased, suggesting that businesses, while facing higher costs, began to adapt to the new policy environment.
Still, the UNCTAD's World Trade Uncertainty Index has surged, particularly in the last 12 months. With rising trade uncertainty comes a volatile exchange market, tighter credit conditions, and persisting inflationary pressures. Altogether adds to a "higher for longer" interest rate scenario.
Why Uncertainty Is More Than Just A Challenge
Uncertainty in trade makes long-term planning difficult. Investment decisions are delayed, and companies hesitate to expand or hire. The weakness in the labor market eventually spills over to other areas, particularly with non-essential retail consumption. Consumer Discretionary Select Sector SPDR Fund (NYSE:XLY) is up just 3.54% year-to-date, significantly underperforming the market.
When existing agreements appear fragile and rules are selectively applied, countries are more likely to take retaliatory actions rather than cooperate. This creates a lose-lose scenario for all involved.
For markets, the consequence is volatility that is hard to predict. Investors can account for a tariff increase, but they struggle to factor in potential tariffs, partial exemptions, or future rule changes.
Disproportionately Affected
While large multinational corporations can reconfigure their supply chains, smaller exporters and developing nations do not have the same capacity. They often lack the financial resources to accelerate shipments or redirect trade when a major market suddenly changes its policies.
An export-oriented economy like Bangladesh has suffered the impact of the 2025 tariffs. Relying heavily on apparel exports to the United States and Europe, its garment factories now face cancelled orders or erratic demand flows.
A large exporter of textiles, leather, and agricultural products, Ethiopia relies on programs such as the U.S. African Growth and Opportunity Act (AGOA). However, uncertainty over extensions or changes to these schemes has repeatedly undermined investor confidence.
The critical issue is that just when developing economies need stability to attract investment and integrate into global trade, the environment becomes increasingly unstable. For small firms, limited access to credit, fewer shipping options, and inflexible production capacity turn every new policy rumor into a real risk.
Read Next:
Photo: Shutterstock
