The UN Trade and Development’s (UNCTAD) September Global Trade Update, published on Monday, finds that while global policy uncertainty is slowly waning, trade uncertainty is rising rapidly, with SMEs and least-developed economies most vulnerable to the current economic environment.

Policy uncertainty emerges as the biggest challenge for global trade, even though it has started decreasing this month after reaching a 20-year high in the first half of 2025. Beyond the whirlwind of US tariffs, which seems to have mostly ceased, increasing competition for raw materials and concern about domestic production is leading to a global rise in protectionism. This, coupled with an increasing use of trade policy to further political, security, and environmental goals and the weakening of trade regulators, is leading to an overall state of policy uncertainty and sudden changes. 

This translates to increased trade uncertainty, which reached an all-time high this month. Policy uncertainty has a far more detrimental impact than the subjects of the uncertainty itself: for example, trade volatility in the US was far higher in the first few months 2025 than in the summer, when tariffs had been announced and taken effect. 

The uncertainty is making the global economic situation worse, increasing costs and slowing growth. As firms try to stay resilient, they decrease investment and cut costs, which has a knock-on effect on suppliers, which are often SMEs or in less developed countries. Overall instability leads to volatile financial markets, eroding investor confidence and making it more difficult to get trade finance – which in turn makes it even harder for already struggling SMEs to stay afloat. 

The report also identifies erosion of trust between trading partners as an important destabilising factor which can reverberate across supply chains. Decreasing trust is even more damaging in industries that rely on long-standing relationships and informal agreements to support trade, like commodities.

Unsurprisingly, SMEs and less-developed countries – both of which are inherently more vulnerable and often at the start of supply chains – are hardest hit by the uncertainty. US trade volatility, for example, decreased in all but the least-developed countries, where it shot up in the second quarter of 2025. 

This shows the wide-ranging knock-on effect of tariff announcements, and the uncertainty around specific details of tariff policies – such as around transshipment or rules of origin – is making firms in less developed countries wary of committing to one export strategy. Small firms, who often export low-value, low-margin products and struggle to access lines of credit, are also hit by uncertainty, and especially by the adjustments made by bigger firms to cope with the uncertainty. For example, front-loading inventories and switching from sea to air cargo to adapt to geopolitical instability can raise costs for SMEs, who find it impossible to adapt so quickly to far lower margins. 

Canada, the UK, and the EU are the most exposed to US trade policy shifts, mainly due to their large volumes of reciprocal trade with the US and their supply chains being tightly interlinked. Currently, all three have reached some kind of deal with the US which keeps most tariffs at manageable levels, especially compared to India and Brazil’s 50%. However, were this to change in the future – or in the case of any more tariff changes to further raise policy uncertainty – developed economies would also start to feel the hit.