Trump’s Tariffs Inflicting Serious Economic Damage and Reigniting Inflation, OECD Says
President Donald Trump’s tariff policies are slowing economic growth in the United States and around the world while sending prices higher again, creating a toxic stew for the global economy that could grow even worse if tensions escalate, the Organisation for Economic Co-operation and Development said Monday.
The quarterly report is the first sweeping attempt by global economists to document and forecast the damage from Trump’s policies to the economies of America and its trading partners. The OECD report shows what US markets have been signaling for several weeks as they’ve rapidly tumbled into correction territory: Trump’s tariffs could choke the global economy and reignite inflation at a precarious time.
Massive new import taxes on a variety of goods from a range of countries imposed by the Trump administration have been met with instant retaliation from some of America’s biggest trading partners. Threats of new tariffs and Trump’s on-again, off-again levies have led to growing uncertainty for businesses around the world, preventing them from making investments that can drive economic growth, the OECD said. Meanwhile, fears of rebounding inflation from tariffs have dragged down consumer sentiment and spending, cutting off fuel for the US and global economies.
“If the announced trade policy actions persist, as assumed in the projections, the new bilateral tariff rates will raise revenues for the governments imposing them but will be a drag on global activity, incomes and regular tax revenues,” the OECD said. “They also add to trade costs, raising the price of covered imported final goods for consumers and intermediate inputs for businesses.”
Gloomier outlook
The group of 38 mostly wealthy nations made new economic forecasts that are noticeably worse than its previous predictions. The OECD predicted US economic growth would slow dramatically this year and next, to 2.2% in 2025 and just 1.6% in 2026. America’s economy grew at a 2.8% rate last year. The global economy is expected to grow 3.1% this year and 3% next year, down from 3.2% growth in 2024.
Meanwhile, US inflation will pick up this year, the OECD predicted. Prices are expected to rise 2.8% in 2025, up from 2.5% last year. They’ll continue to be elevated in 2026, rising 2.6%, the OECD forecast.
Both growth and inflation forecasts are worse than in the previous quarterly report. The OECD previously expected US inflation to be just 2.1% this year, and it predicted US economic growth would be 2.4% in 2025. Global economic growth was expected to rise to 3.3% this year.
But Canada and particularly Mexico will fare significantly worse than the United States in the budding trade war. Trump has promised 25% across-the-board tariffs on America’s neighbors and two of its three biggest trading partners – a move that could plunge both economies into a recession.
The OECD believes Canada’s economic growth will be just 0.7% this year and next, far less than the prediction of 2% growth in the December report. And Mexico’s economy is expected to shrink 1.3% this year and 0.6% in 2026 – a dramatic turn from the previous report, which predicted a 1.2% expansion in 2025 and 1.6% growth next year.
However, China, another direct target of Trump’s tariff policies, will prove more insulated than Mexico and Canada, the OECD predicts. The government, for example, just announced a wide-ranging “special action plan” to promote domestic spending, to counter the economic impact of Trump’s tariffs.
Central banks will have their work cut out for them. Although many around the world have been cutting interest rates to fuel growth after the inflation crisis has subsided, the OECD believes the inflation that tariffs will reignite means central banks will have to keep rates higher for longer, causing prolonged pain for businesses and consumers.
