US President Donald Trump’s escalating trade tariffs are projected to harm global economic growth and fuel inflation, according to the latest forecast from the Organisation for Economic Co-operation and Development (OECD). The OECD warns that Canada and Mexico, which have been hit hardest by the tariffs, will experience the most severe impact, although US growth is also expected to suffer.
Trump has imposed a 25% tariff on all steel and aluminum imports and extended similar tariffs on other imports from Mexico, Canada, and China. These measures have prompted retaliatory tariffs from Canada and the European Union, creating further trade tension. The OECD warns that this escalation is leading to a “fragmentation of the global economy,” with serious risks of lower growth and higher inflation.
In its forecast:
- Canada’s economy is predicted to grow by only 0.7% this year and in 2026, down from the previous forecast of 2%.
- Mexico is expected to contract by 1.3% this year and 0.6% next year, a significant downgrade from earlier projections of 1.2% and 1.6% growth.
- US growth is also downgraded, with 2.2% expected this year and 1.6% in 2025, down from prior forecasts of 2.4% and 2.1%.
- China’s growth forecast was slightly increased to 4.8%, despite facing tariffs from the US.
The OECD also highlighted the impact of the trade war on inflation, expecting interest rates to stay higher for longer as a result of rising costs. The global economy is expected to slow from 3.2% in 2024 to 3.1% in 2025 due to trade tensions. While inflation is forecasted to slow down, it will not decrease as much as initially anticipated, with inflation across 20 of the world’s largest economies predicted at 3.8% this year, up from 3.5% previously forecasted.
The trade war is also affecting industries directly. Tesla, for example, warned that US exporters, including itself, could suffer from retaliatory tariffs imposed by other nations.
In addition to the US, Canada’s, Mexico’s, and China’s outlooks, the OECD also revised the UK’s growth forecast. It predicts the UK economy will grow by 1.4% in 2025, down from an earlier 1.7% forecast, and by 1.2% in 2026, a slight downgrade. These figures are still more optimistic than the Bank of England’s forecast, which recently cut its growth outlook for 2025 to just 0.75%.
