In a significant shift in expectations, the Organisation for Economic Co-operation and Development (OECD) has released a forecast revealing that President Donald Trump’s trade policies will have a more severe impact on both the U.S. and global economies than previously anticipated. The organization’s report emphasizes the chaotic repercussions of Trump’s tariffs, which could reverberate through economies worldwide, causing extended harmful effects.
The OECD has downgraded its growth forecast for the United States for 2025 from 2.2% to 1.6%, a concerning revision that highlights the widespread uncertainty surrounding tariff policies. Furthermore, the OECD predicts that economic growth will remain subdued for the upcoming year. This downgrade indicates the increasing apprehension regarding the potential for Trump’s trade war to disrupt economic stability not just in America, but across the globe.
Several factors contribute to this gloomy outlook. Notably, the OECD cites the imposition of higher tariffs, which includes retaliatory tariffs from trading partners like China and Canada. These retaliatory measures are likely to slow down U.S. exports significantly. Additionally, a slowdown in net immigration, coupled with a “sizable reduction” in the federal workforce, has compounded the challenges faced by the economy.
On a broader scale, the OECD has also projected a global economic slowdown, forecasting growth to drop to 2.9% both this year and next. This figure marks a downgrade from previous projections of 3.1% and 3%, respectively. These estimates hinge on the assumption that tariffs will remain at their May levels, a scenario that threatens to erode economic optimism worldwide.
OECD Chief Economist Alvaro Pereira warns of the dangers of escalating tariffs around the globe, indicating that a cycle of retaliatory tariffs may leave everyone worse off. Trade has historically been a vital driver of growth and prosperity, contributing to the uplift of nearly a billion individuals from poverty. The OECD’s report suggests that tariffs are transforming the landscape of international trade into one defined by uncertainty, undermining consumer and business confidence.
The organization’s Secretary-General Mathias Cormann underscored the shift from a period characterized by resilient growth to one fraught with unpredictability. The prevailing policy uncertainty is impacting trade and investment, weakening overall growth prospects. The OECD’s Economic Outlook highlights that the slowdown will be notably concentrated in the United States, Canada, Mexico, and China—countries most directly affected by Trump’s tariffs.
Since taking office, Trump has aggressively raised import duties on a wide array of goods and trading partners, notably on cars and steel. Despite facing legal challenges that have complicated the implementation of these tariffs, a new round of high reciprocal tariffs is imminent unless a resolution can be achieved with affected nations.
The unpredictability surrounding tariffs and their erratic implementation are weighing heavily on businesses and consumers alike. The OECD warns that the new U.S. import taxes, alongside retaliatory measures from other countries, signify a level of disruption that surpasses the previous U.S.-China trade conflict in 2018-2019. This comparison further underscores the extent of the economic turbulence that may arise from ongoing trade tensions.
Moreover, the OECD has cautioned that increasing tariffs could push inflation higher in affected countries, prompting central banks to act. Traditionally, when inflation rises, central banks respond by tightening monetary policy—raising interest rates to curtail spending and investment. However, Trump has publicly urged U.S. Federal Reserve Chair Jerome Powell to lower borrowing costs despite the potential inflationary consequences of his tariffs. Powell has maintained a more cautious approach, indicating a desire to monitor how the tariffs will influence the overall economic landscape before making any decisions.
In summary, the OECD’s recent findings paint a stark picture of the potential fallout from Trump’s trade war. With revised forecasts showing weaker economic growth for the U.S. and a marked slowdown in global economic activity, the ramifications are likely to be felt by consumers and businesses everywhere. The uncertainty surrounding tariffs continues to generate significant concerns across the international economic community. Moving forward, it remains to be seen how policymakers will navigate the challenges posed by an increasingly fragmented global trading environment. The future of economic stability hinges on addressing these tariff-induced uncertainties while fostering a collaborative approach to international trade.
Source link
