Trump's tariffs are hurting US and global economy, OECD warns

Straits Times

2 days ago

OECD secretary-general Mathias Cormann at the presentation of the OECD Economic Outlook in Paris on June 3. The OECD has slashed its global forecasts for the second time in 2025. PHOTO: REUTERS
PARIS – US President Donald Trump's combative trade policies have tipped the world economy into a downturn clouded in heightened uncertainty, with the United States among the hardest hit, the OECD has warned.
The Organisation for Economic Cooperation and Development (OECD) slashed its global forecasts for the second time in 2025, citing the impact of Mr Trump's tariff onslaught.
The combination of trade barriers and uncertainty are hitting confidence and holding back investment, the Paris-based organisation said, while also warning that protectionism is adding to inflationary pressures.
The OECD now forecasts global economic growth to slow to 2.9 per cent in 2025 from 3.3 per cent in 2024. It expects the rate of expansion in the US will tumble further, to 1.6 per cent from 2.8 per cent – an outlook that is significantly lower than its projection in March.
'Weakened economic prospects will be felt around the world, with almost no exception,' the OECD's chief economist Alvaro Pereira said. 'Lower growth and less trade will hit incomes and slow job growth.'
The assessment indicates how Mr Trump's policies have become the most pressing problem for the global economy, with no easy solution in sight.
The situation could yet be exacerbated by retaliation from US trading partners, a further erosion of confidence or another bout of repricing on financial markets, the OECD said.
The club of 38 rich countries published its forecasts just as its members' ministers convene in Paris for an annual meeting.
Top commerce officials are expected there, including US Trade Representative Jamieson Greer and EU Trade Commissioner Maros Sefcovic. Mr Lin Feng, a representative from China's Ministry of Commerce, is also scheduled to attend.
'Agreements to ease trade tensions and lower tariffs and other trade barriers will be instrumental to revive growth and investment and avoid rising prices,' the OECD said. 'This is by far the most important policy priority.'
Yet, the organisation also said even if Mr Trump reverses course on tariffs, the bonus in terms of growth and reduced inflation would not materialise immediately, due to a persistent drag from heightened uncertainty over policy.
For the US, the OECD said curbs on immigration and a sizable reduction in the federal workforce add to the trade-related drag on the economy.
It also cautioned that the US budget deficit will expand further as the effect of weaker economic activity will more than offset spending cuts and revenues from tariffs.
Inflation in the US will also move higher in 2025, making it likely that the Federal Reserve will not resume easing policy until 2026, according to the OECD. That process may even be derailed if consumer-price expectations get de-anchored, it added.
For other central banks, the OECD also urged continued vigilance.
While it expects inflation to ease to their targets in 2026, that process will now take longer, and the pace of price increases may even increase before easing again, it said.
Besides the fallout from global trade, the OECD also warned that fiscal risks are intensifying around the world, with 'tremendous' pressures for more spending on defence, climate and aging populations.
It called for governments to reduce non-essential spending and raise revenues by broadening tax bases. BLOOMBERG
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