Jamie Spencer
President Donald Trump’s tariff policies are dragging down economic growth in the United States and globally, while simultaneously driving up inflation, according to a report from the Organisation for Economic Co-operation and Development (OECD) released Monday.
The OECD’s quarterly report is the first comprehensive forecast assessing the damage caused by Trump’s trade policies. It confirms what US markets have been signaling in recent weeks as they tumble into correction territory: Trump’s tariffs could choke the global economy while reigniting inflation at a precarious time.
Tariffs Increase Costs, Stall Investments
The Trump administration has imposed massive new import taxes on goods from multiple trading partners, prompting immediate retaliatory tariffs from affected nations. The OECD warned that uncertainty surrounding these policies is discouraging businesses worldwide from making investments that drive economic growth.
Meanwhile, the fear of higher costs due to tariffs has dragged down consumer sentiment and spending, cutting off crucial economic momentum. The report also warns that these tariffs could significantly increase costs for consumers and businesses alike.
“If the announced trade policy actions persist, the new bilateral tariff rates will raise revenues for the governments imposing them but will be a drag on global activity, incomes, and tax revenues,” the OECD said. “They also add to trade costs, raising the price of imported goods for consumers and intermediate inputs for businesses.”
Weaker Economic Outlook
The OECD has downgraded its economic forecasts for the US and global economy:
- US GDP growth: Expected to slow to 2.2% in 2025 and just 1.6% in 2026, down from 2.8% in 2024.
- Global GDP growth: Forecasted at 3.1% in 2025 and 3.0% in 2026, lower than the 3.2% growth recorded in 2024.
- US Inflation: Expected to rise to 2.8% in 2025 and remain elevated at 2.6% in 2026.
These figures are noticeably worse than previous projections, which had forecast 2.4% US economic growth in 2025 and 2.1% inflation for this year.
Canada and Mexico Hit Hardest
The OECD warned that Canada and Mexico, two of America’s largest trading partners, are at the highest risk of a severe economic downturn:
- Canada’s GDP: Expected to slow to just 0.7% in both 2025 and 2026, far below the previous 2% growth projection.
- Mexico’s GDP: Forecasted to shrink 1.3% in 2025 and 0.6% in 2026, a drastic revision from the prior estimate of 1.2% growth in 2025.
China, however, appears more insulated from the effects of Trump’s tariffs. The Chinese government recently announced a “special action plan” aimed at promoting domestic spending to counteract the economic impact of US trade restrictions.
Challenges for Central Banks
While central banks around the world had been moving to cut interest rates to stimulate growth, the OECD warns that tariff-induced inflation may force them to keep rates higher for longer. This could prolong economic pain for businesses and consumers, making recovery even more difficult.
With global economic uncertainty rising and markets reacting negatively, economists warn that unless trade tensions ease, the risk of a global recession will only increase.
