by Dr. Sarvesh Swarup
1-In view of the prevailing present day economic turmoil world over it is incumbent for the underdeveloped /developing countries to work out the strategies which will enable them to trade with developed countries in a time and cost-effective manner. A positive political alignment is a must to proceed in this direction. It is still more important for the geographically aligned underdeveloped/developing countries.
2-The prevailing economic turmoil world over is majorly affecting foreign trade as well as the economy of the underdeveloped/developing and developed countries. Changing patterns of foreign trade are posing new challenges, urging a broader policy approach to revitalize development in the age of public discontent. Having stagnated in the year 2023, foreign trade is projected to grow by about 2 percent in real terms in the year 2026. This rebound is mainly driven by the revival of merchandise trade that accounts for about 75% of global commerce in value terms. Trade in services is projected to expand faster at around 5%. Transport and travel components notably posted double digit growth rates. The rise of protectionist policies in developed countries along with rapid technological advancements and supply chain disruptions could threaten efforts by the underdeveloped/developing countries to promote themselves from low to high productivity economic activities.
3-Therefore, in the year 2026 underdeveloped, Least Developed Countries (LDC’s) and developing countries (emerging market and developing economies -EMDE’s) should follow a trade landscape that is characterized by sluggish growth, rising protectionism and digital transformation. To maximize mutual benefit, these nations should focus on strengthening south-south trade, leveraging regional trade agreements and advancing digital transformation to reduce dependency on volatile western markets. It is a fact that underdeveloped/developing countries need more support to navigate the growing turbulence in global trade. It is also a fact that over period of about last thirty years, underdeveloped/developing countries doubled their share of global exports to about 30 percent. The urgent question on date is can this be sustained? The global trade scenario is undergoing a rapid transformation on account of rising geopolitical tensions, rapid advances in digital technology and the existential threat of climate change. The developing and developed economies should double down on trade liberalization. The protectionist trade policies being followed by some developed countries will broadly have the following impact on underdeveloped/developing countries.
i. Trade restrictions will hurt underdeveloped/developing countries economically and financially
ii. Maintaining import tariffs is of limited use to emerging underdeveloped/developing economies.
iii. The underdeveloped/developing countries need to strengthen their macroeconomic and financial resilience.
iv. The underdeveloped/developing countries should double down on internationaltrade and financial integration.
4-As of early 2026 the status of world trade is characterized by resilience in the face of significant slowing and rising fragmentation, with growth expected decelerating from 2025 highs due to geopolitical conflicts and heightened protectionism. Whereas the year 2025 saw a surprise 4.6% increase that was majorly driven by AI investments and trade frontloading. The trade growth in the year 2026 is projected to slow down to about 1.9 to 2 percent in the WTO baseline scenario and potentially drop to about 1.4% if energy prices remain high due to middle east conflicts. These indicators drive us to identify the strategies which will help to control the dropping trade growth These are broadly identified as follows.
STRATEGIES TO CONTROL THE DROPPING TRADE GROWTH
Strengthen Regional Integration (South-South trade)
i. Leverage Regional Agreements-Fully implement frameworks like the African Continental Free Trade Area (AFCFTA) and the regional comprehensive economic partnership (RCEP) to boost intra -regional exports
ii. Diversify Export Partners-Trade among developing countries has expanded significantly to about US$ 6.8 trillion in the year 2025. serving as a buffer against shocks from major economic powers.
iii. Regional Value Chains – Develop local supply sources for small parts etc. rather than relying solely on global supply chains to reduce transport costs and vulnerability to shipment disruptions.
Prioritize Digitalization and Services Trade
i. Bridge the Digital Gap-While the services trade is outpacing goods, digitally deliverable services account for only about 16% of LDC service exports, compared to about 61% in developed nations. Therefore, LDC’s must invest in digital infrastructure e.g. paperless customs to reduce transaction costs.
ii. Focus on Services-Shift from relying on raw commodity exports to integrating services like tourism, transport and finance into their trade.
Move Up the Value Chain-Industrial Strategy
i. Value Addition- Instead of exporting raw materials countries must pursue industrial policies that promote processing critical materials like cobalt, lithium, and copper domestically to increase export value.
ii. Strategic Industrial Policy—Ensure that industrial policies are time bound,transparent and aligned with WTO commitments to foster knowledge spillovers
Enhance Resilience and Sustainability
i. Diversify Products- Diversification in traded goods provides insurance against adverse developments in any single commodity sector.
ii. Green Trade Integration- As the EU (European Union) and others implement carbon border mechanisms developing countries must secure green finance (environmentally friendly) and technology to maintain competitiveness in clean energy markets.
Leverage Trade Policy and Negotiations
i. Developing countries should utilize flexibilities in WTO agreements to protect domestic industries while scaling up capabilities.
ii. Advocate for fairer terms-LDC; s should push for permanent duty free and quota free access to markets to increase their marginal share of global trade.
Address Supply Side Constraints
i. Infrastructure Investment-Improving ports, roads and logistics is essential to reduce trade costs which are disproportionately high in LDC; s
ii. Trade Finance-Developing countries need to leverage South-South financing mechanisms to address the problem of shortage of trade finance and avoid dependency on exploitative trade relations.
5-Therefore, in substance the year 2026 economic environment requires a shift toward resilient and digitally enabled regionalism that will increase productive capacity through collaboration among the emerging markets. This shift is all the more important as foreign trade is experiencing a transition from a robust 2025 recovery to a slowing more fragile and fragmented state in the year 2026. The fact is the overall trade environment is increasingly fragmented marked by a South-South trade surge. Trade among developing economies grew by about 9% in the year 2025. While the global economy has shown surprising resilience, the year 2026 outlook is fragile with high risks of downside shocks. It is a fact that after a strong year 2025 driven by AI investment and tariff frontloading, global merchandise trade growth is expected to slow down from 4.6% in year 2025 to roughly about 1.9% in the year 2026(baseline scenario) with significant risks of further falling down to about 1.4% if energy prices remain high due to conflicts. These are kind of alarming signals that call for improvisation of such strategies unitedly by LDC’s/developing and developed countries to improve foreign trade to a sustainable level.
ROLE PLAYED BY WTO IN THE PROMOTION OF BUSINESS BY LDC’s
6-It is therefore important to examine the status of LDC’s and their existence in foreign trade under the prevailing economic scenario world over. The WTO has played a significant role in addressing the needs of LDC’s in foreign trade. The organization has played an active role in helping LDC’s benefit from foreign trade and achieve better integration into the global economy. Thus, over the period of past about ten years LDC’s have seen their share in world merchandise trade gradually improving. Market access opportunities for LDC’s have also significantly increased. This has been possible because of developing/developed countries adopting preferential schemes and helping LDC products attain duty free and quota free market access. Developing/developed countries have also extended their cooperation to LDC’s by adopting improved market access schemes for them. Concurrently the LDC’s have also benefited from flexibility in implementing multilateral trade rules that have helped them pursue economic and trade policies which are conducive to their development. The WTO has also increased its cooperation with other partner institutions to help build supply side capacity and trade related infrastructure in the LDC’s. However, in view of the declining foreign trade status world over as visible in the year 2026, more effective coordination is required among the LDC’s, developing /developed countries to increase the flow of merchandise and services in a time and cost-effective manner.
ROLE PLAYED AND POLICY RECOMMENDATIONS FROM UNITED NATIONS TO PROMOTE FOREIGN TRADE
7-The United Nations also plays a significant role in promoting foreign trade under the prevailing economic turmoil world over. The United Nations through the UN Conference On Trade and Development (UNCTAD) plays a critical role in promoting foreign trade and stabilizing global commerce amid the year 2026 economic turmoil which is characterized by slower growth (expected at 2.7%), high debt levels, rising protectionism and geopolitical fragmentation. UNCTAD supports developing nations with expertise in trade, finance, debt, investment and digital economy. It further underscores the need for underdeveloped/developing countries to strengthen their domestic industries and reduce vulnerability to global economic shocks. It calls for a balanced strategy that targets both manufacturing and services, including non-traded sectors, to create quality jobs and boost productivity. Such policies must be supported by international agreements that prevent trade conflicts and guarantee easy access to global markets and financing. The UnitedNations envisages multilateral institutions like WTO play a bigger role in managing the risks of trade fragmentation and ensuring that underdeveloped/developed countries have a voice in shaping the future of the global trading system. The fact is that underdeveloped/developing countries need more support to navigate the growing turbulence in global trade from organizations like United Nations and WTO.
8-Therefore, in this write-up an effort is being made to identify the KEY ELEMENTS OF THE CURRENT FOREIGN TRADE LANDSCAPE WHICH BROADLY INCLUDE
i. Slowing growth and high uncertainties- World merchandise trade volume growth is set to slow down from 4.6% in the year 2025 to about 1.9% in the year 2026. It is expected to recover to the level of about 2.6% in the year 2027. This is driven by trade normalization following the year 2025 front loading of imports to avoid tariff increases.
ii. Geopolitical and conflict pressures- The ongoing conflict in the middle east is significantly affecting trade, particularly through reduced oil and fertilizer shipments through the Persian Gulf. Sustained high energy prices could cut 0.5 percentage points from merchandise trade growth in the year 2026.
iii. AI related trade booms- The surge in artificial intelligence related technology remains a key driver accounting for roughly 42% of total global trade growth in the year 2025, with strong growth expected to continue in the year 2026 thus mitigating the impact of higher tariffs.
iv. Rising protectionism- Global tariffs rose in the year 2025 especially in manufacturing with trade weighted averages increasing from 5.7%to 6.7% and are expected to remain a structural constraint in the year 2026. The share of trade on Most Favored Nation (MFN) terms has fallen to 72% from 80% previously.
v. Reconfiguration of supply chains – Geopolitical tensions and rising tariffs are driving supplier diversification. Trade between even developed countries has contracted sharply on account of diversion of trade to intermediaries.
vi. Strong service sector performance- Services trade continues to outpace goods. It grew by about 8% in the year 2025 and is expected to rise further driven by digitally delivered services. Though growth is reducing from 4.6% in the year 2025 to a projected 1.9% in the year 2026.
vii. Regional Divergence- In the year 2026 Asia is expected to lead merchandise import growth (3.3%) and export growth (3.5%). On the other hand, imports and exports of other developed countries may remain static.viii. Thus, the overall trade environment is increasingly fragmented marked by a southsouth trade surge which grew by about 9% in the year 2025. Whereas the global economy has shown surprising resilience, the year 2026 outlook is fragile with high risks of domestic shocks. The fact also remains that over 80% of global merchandise trade is on Most Favored Nation basis
9-GROWING IMPORTANCE OF AI IN ECONOMIC GROWTH AND FOREIGN TRADE
i. Artificial intelligence is already reshaping how the economies produce, trade and grow. The world trade report 2025 launched at the WTO Public Forum on 17th September 2025 examines the profound ways in which AI could transform foreign trade. The report’s findings are clear that AI has the potential to accelerate growth and expand trade opportunities. However, the extent to which these benefits are shared will depend on the choices policy makers make on date.
ii. The fact however remains that AI is already reshaping trade flows. Foreign trade in AI enabling goods such as critical minerals, semiconductors and computing equipment reached US$ 2.3trillion in the year 2023. These goods form the backbone of AI innovation and ensure that they are widely available at affordable prices.
iii. Further the share of AI enabling goods in foreign trade rose from around 13% in the year 2023 to nearly 17% by the end of the year 2025. Trade in these products grew by about 21.9% year on year in 2025. North America is now the fastest growing market for AI related goods, but Asia remains the global hub accounting for about 62% of total AI enabling trade.
iv. The development of AI will affect foreign trade in several ways. The most important is the macroeconomic inputs and the related trade effects.AI is also likely to accelerate the transition towards services economies.AI can be used to improve predictions of future trends, such as changes in consumer demand as well as to better manage risk along the supply chain. It can also be used to manage and improve warehouse management, demand prediction and improve the accuracy of just in time manufacturing and delivery, improve physical inspection etc.
10-THE IDENTIFIED POSSIBLE MEASURES TO IMPROVE FOREIGN TRADE IN VIEW OF PREVAILING ECONOMIC TURMOIL WORLD OVER
The prevailing economic turmoil world over in the year 2026, which is mainly characterized by rising protectionism, supply chain reconfiguration and slower global demand, improving foreign trade requires a shift towards resilience, digitalization and strategic diversification.
As global trade growth is expected to remain positive but slow countries are focusing more on regional partnerships, strengthening South-South trade and adopting sustainable techdriven trade policies. The following are the key measures identified to improve foreign trade in the present-day environment.
Diversification of markets and supplies.
i. Supplier Diversification-companies and nations are reducing reliance on single suppliers and are moving away from cost driven offshoring towards risk management which enhances resilience.
ii. Targeting new trade routes-Developing economies are increasingly shifting focus to South-South trade -trade between developing countries which is outpacing trade with northern economies
iii. Regional integration-Strengthening regional links which can boost long term resilience against global shocks and promote stability
Digitalization and technological adoption
I. Digitally delivered services account for 27% of foreign trade and grew by 9% in the year 2025 outpacing goods investing in digital infrastructure (telecommunications and IT services) is critical as digitally deliverable services now constitute a large share of exports.
II. Streamlining customs-Implementing blockchain and digital solutions for customs processes can reduce processing times, enhance transparency and reduce bureaucratic barriers.
III. E-commerce expansion -expanding digital trade capabilities allows firms to reach global markets even when the physical supply chains are disrupted.
Supply chain resilience and agility.
i. Nearshoring/Friendshoring-companies are relocating their production closer to end markets(nearshoring) or to allied nations(friendshoring) to avoid geopolitical bottlenecks.
ii. Inventory Building-Front loading imports ahead of anticipated tariffs, while cost intensive has been used as a strategic buffer against the impending trade restrictions particularly for high value goods.iii. Flexible Logistics – Adopting agile, asset light models and decentralized production enables rapid reallocation of resources in response to the changing trade conditions.
Trade finance and policy support
i. Export credit insurance-with rising nonpayment risks, providing trade credit insurance is crucial to protect exporters from insolvency and cash flow disruptions.
ii. Currency Hedging-Include pricing clauses in contracts to mitigate the impact of sudden foreign exchange fluctuations.
iii. Expand access to finance -Improve transparency in commodity trading to make trade finance more accessible to smaller businesses.
Alignment with sustainability
i. Trade policies are increasingly converging with climate goals such as EU’s carbon border mechanism.
ii. Green tech exports-Investing in clean energy technologies (e.g. solar, wind, batteries) targets one of the fastest growing segments of foreign trade
iii. Sustainable Logistics-Adopting electric vehicles and optimizing supply chains for lower carbon output. This can improve long term competitiveness as environmental standards tighten.
11-In view of the above critical analysis of the measures to improve foreign trade in near future, the probability of the same is now examined as far as possible in a realistic manner. The data analysis as of early year 2026 indicates that the chances of foreign trade improving significantly in the near future (2026-2027) are tempered by high risks of slowdowns, although positive and moderate growth is expected.
Whereas the year 2025 was a record year for foreign trade exceeding $35 trillion, the momentum is expected to slow down in the year 2026 due to protectionism, geopolitical tensions and structural shifts. The merchandise trade volume growth is projected to drop to approximately 1.9%-2.5% in the year 2026 down from 4.6% in the year 2025. As a rough estimate it may pick up to about 2.6% in the year 2027. Therefore, to improve foreign trade amidst the prevailing global economic turmoil both governments and businesses must pivot towards strategies that prioritize resilience, diversification and technological integration. The rising protectionism and tariffs are on the rise and on date are a matter of great concern for LDC’s and developing countries.
Geopolitical disruptions such as conflict in the Middle East, poses significant downside risks along with the rising oil prices and shipping disruptions (Strait of Hormuz) etc. Therefore,looking into the overall economic scenario as on date and examination of the foreign trade related parameters the following suggestions are made to boost foreign trade, especially from LDC’s and developing countries.
A. The geographically aligned LDC’s and developing countries should coordinate more effectively to do joint trading with developed countries. This may include identification of the merchandise, follow the same specification and import and export contract terms and conditions and entering into unified contracts
B. Unification of import duty on goods exported by LDC/developing countries and entering into a joint contract with developed countries, quantity distribution as per the available production capacity.
C. The developing countries which are geographically aligned or are in close proximity and have similar economic indicators also should coordinate as per A and B above to do trading with developed countries in a time and cost-effective manner.
D. The developed countries should improvise two sets of tariffs (import and export duty), one for developed countries and the other for LDC’s and developing countries. This will go a long way to improving the trading with LDC’s and developing countries.
E. Developed countries should identify items which can be reserved for import only from LDC’s and developing countries. This will make their imports more economical as their export prices will be much lower than the prices of developed countries.
F. The generic item specific specification should be standardized for imports from LDC’s and developing countries for supplies to sustain on long term basis at the most economic price.
G. Most importantly unified contract terms and conditions be standardized for LDC’s and developing countries to enable smooth operation of contracts on long term basis.
H. As contracts are governed by the law of the land, it is incumbent for the developed countries to improvise unified law to govern contracts awarded to LDC’s/developing countries. This will go a long way to ensure smooth operation of the contracts awarded to LDC’s/developing countries. English Law is one of the most preferred and widely used legal systems in international commerce. Its appeal stems from its commercial certainty, party autonomy and a predictable expert court system in London. It provides a stable, predictable framework that mitigates risk across borders. It is preferred worldwide due to its prosperous legal framework, predictability and adaptability. Therefore, in a broader perspective, WTO may examine the adoption of English Law as such or with partial modifications as deemed necessary and make it mandatory to be followed in international contracts by all the countries world over.I. As also suggested by UN the effective role of WTO is envisaged to examine the implementation of the above suggested contract terms to further streamline the operation of international contracts and improve foreign trade on a fast track under the prevailing economic turmoil world over.
Written by Dr. Sarvesh Swarup
BSc. (Engg – Mech), MDPA, PhD. (UCLA) USA
