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UNCTAD: why the early-year surge in merchandise trade will not last

By Carly Fields

Merchandised trade entered this year on an unexpectedly strong footing, propelled by high-tech manufacturing and containerised shipping across the Pacific. However, beneath the surface of these strong early performance indicators is a more fragile reality, according to the United Nations Conference on Trade and Development (UNCTAD).

In its newest report, Trade and Development Foresights 2026, UNCTAD found that the initial momentum that defined global trade over the last few quarters is already facing headwinds. Trade analysts and policymakers are warning that a combination of cooling tech sectors, structural vulnerabilities, and sudden military escalations in the Middle East will severely restrict international trade for the rest of the year.

“Fragile aggregate demand, compounded by persistent uncertainties and new geopolitical risks, suggest that the momentum observed in 2025 and early 2026 will fade as the year progresses,” said the report.

Trade metrics from January and February presented an image of robust health, pointing to resilient trade volumes, driven primarily by containerised cargo flows originating from major Asian industrial hubs and traversing transpacific shipping lanes. China, in particular, posted strong performance indicators at the start of the year, with its total exports expanding by more than 20% in dollar terms during the first two months compared with the same period twelve months prior.

Global seaborne cargo expanded 5.3% over January and February, underpinned by double-digit growth rates in distinct commodity segments including automotive vehicles, grain, and liquefied natural gas, UNCTAD said. This data was supported by the global manufacturing purchasing managers’ index reaching heights not observed since 2021.

Balancing act

Yet, UNCTAD notes that this early-year strength was structurally unbalanced. The majority of the trade expansion was heavily concentrated within a highly specific, narrow band of advanced technological goods, rather than representing a broad-based recovery of global consumer demand. Specifically, the marketplace was disproportionately driven by artificial intelligence-enabling hardware and technology-intensive electronics, according to UNCTAD. The report notes that "AI-related hardware contributed massively to merchandise trade in 2025" and early 2026, which artificially inflated aggregate trade figures.

This contrasts with lower gains for trade in basic consumer items, textiles and garments, and standard intermediate industrial inputs recorded only nominal, modest gains during the same window. Furthermore, commodity-linked trade remained subdued, and capital goods outside of the immediate digital technology sphere displayed uneven momentum, pointing to soft, stagnant investment cycles across a wide range of developing countries.

This underlying vulnerability was tested by the abrupt shift in global risk factors brought on by the war in Iran. The military escalation in the Middle East region has disrupted key global shipping routes, compounding existing macroeconomic fragilities. In particular, the critical maritime lanes around the region are facing unprecedented pressures, introducing severe bottlenecks into energy and cargo logistics. "The disruptions in the Strait of Hormuz have induced a significant negative shock to trade and maritime transport in particular," UNCTAD said.

Elevated energy costs due to the war have acted as a direct tax on global production and transportation, introducing macroeconomic pressures that directly hit merchandise import capacity.

While net energy-exporting countries may experience short-term windfalls from elevated oil revenues, domestic consumers worldwide remain hyper-sensitive to escalating fuel and utility prices. Even minor inflationary pressures on consumer goods risk undermining broader public consumption, subsequently triggering a substantial slowdown in general merchandise imports and hurting global trading partners, according to UNCTAD.

Policy volatility

Amid these tensions, the institutional backdrop of international trade is rapidly transforming. Driven by the volatile policy landscape, several economies are bypassing traditional channels to become more proactive in launching localised, regional, or sectoral trade initiatives. The scope of trade policy co-operation is expanding beyond simple tariff reductions to focus on supply chain resilience, securing critical minerals, digital commerce frameworks, and environmental standards. For example, the US has signed 21 bilateral frameworks and memorandums of understanding dedicated exclusively to critical minerals over the past six months, covering 28 separate economies, noted UNCTAD. Simultaneously, China has introduced its own International Economic and Trade Cooperation Initiative on Green Mining and Minerals, while the European Union–Singapore Digital Trade Agreement entered into force at the start of February.

This rapid proliferation of independent regional and plurilateral arrangements is testing the resilience of the traditional multilateral trading system. 

Historically, regional trade pacts were viewed as complementary building blocks designed to reinforce the central architecture of the World Trade Organization. Now, companies and governments face an increasingly fragmented and unpredictable commercial landscape.

The compounding impact of these dynamics is a conservative forward trade projection. UNCTAD forecasts a steep drop in trade growth for the remainder of the year. In real terms, the growth rate of world merchandise trade is projected to decelerate sharply from the robust 4.7% expansion recorded in 2025 down to a modest range of just 1.5 to 2.5% in 2026.

The early-year surge has proven to be a temporary high-tech anomaly rather than a sustainable economic recovery, leaving global supply chains and trade-dependent economies facing a volatile and challenging year ahead.