The ongoing expansion of trade tariffs implemented by US President Donald Trump will have negative effects on global economic growth and inflation, as predicted by the Organisation for Economic Co-operation and Development (OECD) in their recent forecast.
Canada and Mexico will experience the most significant impact due to the imposition of the harshest tariffs on these countries. However, growth in the US is also expected to be affected. The OECD has drastically reduced its growth projections for Canada and Mexico, with the potential of pushing Mexico into recession. This is because Trump has introduced 25% tariffs on all steel and aluminium imports, and other imports from Mexico and Canada have also faced additional tariffs.
In response, Canada and the EU have announced retaliatory tariffs. The OECD has attributed the decline in investment and household spending to the higher trade barriers and increased geopolitical and policy uncertainty. According to their latest forecast, Canada’s economy is predicted to grow by only 0.7% this year and in 2026, a sharp decline from the previous forecast of 2%. Mexico’s economy is now forecasted to contract by 1.3% this year and shrink an additional 0.6% next year, in contrast to the previous expectations of growth. Furthermore, the growth prospects in the US have also been downgraded. However, in spite of the tariffs imposed on China, the OECD has slightly increased its growth forecast for the country to 4.8%.
The OECD has warned that the ongoing trade conflict is likely to drive up inflation, which in turn could lead to higher interest rates for a longer period. They have also highlighted the risk of further fragmentation of the global economy, emphasizing that higher and broader increases in trade barriers would adversely impact growth worldwide and contribute to inflation. The OECD predicts that global economic growth will slow down from 3.2% in 2024 to 3.1% in 2025, mainly due to trade tensions.
Source: https://www.bbc.com/news/articles/c9wpq0g10xjo
