Global Economic Growth Will Be Blunted By US Tariffs, OECD Says
The world economy will take a significant hit over the next 18 months—and tariffs are a major culprit, according to newly released forecasting from the Organization for Economic Cooperation and Development (OECD).
In its June report released this week, the intergovernmental organization with 38 member countries projected that global economic growth would fall from 3.3 percent in 2024 to 2.9 percent in 2025 and 2026, though previous projections put it at 3.1 percent this year and 3 percent next year.
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'Weakened economic prospects will be felt around the world, with almost no exception,' wrote Álvaro Pereira, OECD's chief economist.
In the U.S., growth outlook was amended to 1.6 percent in 2025 and 1.5 percent in 2026—a notable downward revision from just several months ago. OECD predicted in March that the U.S. economy would expand by 2.2 percent this year.
'In the past few months, we have seen a significant increase in trade barriers as well as in economic and trade policy uncertainty,' Pereira wrote. 'This sharp rise in uncertainty has negatively impacted business and consumer confidence and is set to hold back trade and investment.'
The slowdown in trade is expected to impact jobs and incomes—a perfect storm when coupled with 'stubbornly sticky' service price inflation and slightly elevated product pricing. According to OECD, trade protectionism is underscoring inflationary pressures, with countries that stand to be most impacted by President Donald Trump's tariffs facing a longer road to recovery as inflation cools to central bank target levels in 2026 across most markets.
Annual headline inflation across the G20 economies—which represent 85 percent of global GDP and 75 percent of international trade—is expected to cool, decreasing from 6.2 percent to 3.6 percent this year and moving downward to 3.2 percent in 2026. But the U.S. bucks the trend, with annual inflation projected to rise to just under 4 percent by the end of this year. It will remain above target in 2026, OECD said.
Predictably, economic slowdown is concentrated in the U.S., Canada and Mexico—which have been the subject of much tariff-focused debate—with China and other global economies poised to experience more tempered downward adjustments. The group said its forecasting assumes that mid-May tariff rates will remain in place (though the Trump administration has faced legal challenges to its authority to impose the duties in recent days).
While the only seeming certainty in the administration's trade policy is volatility, with changes occurring daily if not weekly, OECD forecasted that trade growth across the world would slow 'substantially' over the course of the next two years as businesses pull back on investment due to a lack of surety. There has been a 'significant front-loading' of goods ahead of the scheduled tariff increases that is not indicative of future trade volume.
'Higher bilateral tariff rates are a drag on global activity and add to trade costs, raising the price of covered imported final goods for consumers and intermediate inputs for businesses, particularly in countries where tariffs are imposed,' the research said. 'The initial effect on prices is likely to be felt close to the time of the tariffs being implemented, with the full impacts on output growth taking longer to materialize.'
The new duties introduced by the Trump administration up to mid-May are estimated to have raised forecasted tariff rates on U.S. merchandise imports to a whopping 15.4 percent, up from just over 2 percent last year—the highest rate since 1938. Combined with retaliatory measures imposed by other countries like China (and to a more limited extent, Canada), over 2 percent of world GDP is now facing higher duties.
The global reverberations for industry and trade could be significant, given that the U.S. is such a critical export market for many countries. Seventy-five percent of goods exports from Mexico and Canada enter the U.S. market, while Japan (19 percent), China (13 percent) and Germany (10 percent) all face significant exposure in the months ahead.
As such, Pereira said avoiding 'further trade fragmentation' and the erecting of new barriers to global trade is 'by far the most important policy priority.'
'Agreements to ease trade tensions and lower tariffs and other trade barriers will be instrumental to revive growth and investment and avoid rising prices,' he added.
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