The Organization for Economic Co-operation and Development (OECD) has issued a stark warning about the negative impact of escalating U.S. trade tariffs on global economic growth and inflation. In its latest forecast, the Paris-based organization predicted that Canada and Mexico would bear the brunt of U.S. trade policies, with both economies facing significant slowdowns, while the U.S. itself is also expected to experience slower growth.
Impact on Canada and Mexico
The OECD has more than halved its growth projections for Canada, now expecting the economy to expand by just 0.7% in 2024 and 2025, a sharp downgrade from its previous forecast of 2% for both years. Mexico faces an even grimmer outlook, with the OECD predicting a contraction of 1.3% this year and a further 0.6% decline in 2025, reversing earlier expectations of growth at 1.2% and 1.6%.
The downturn in both countries is largely attributed to tariffs imposed by the U.S., which include a 25% duty on all steel and aluminum imports, alongside additional 25% tariffs on various imports from Mexico and Canada. While some exemptions exist, these measures have led to retaliatory tariffs from Canada and the European Union, further exacerbating trade tensions.
U.S. Growth Downgraded
Despite imposing tariffs to protect domestic industries, the U.S. economy is also expected to suffer. The OECD has revised its growth outlook for the U.S. downward, forecasting a 2.2% expansion in 2024 and 1.6% in 2025, compared to its previous projections of 2.4% and 2.1%. The report suggests that heightened trade barriers, combined with increasing geopolitical and policy uncertainty, are weighing on investment and consumer spending.
Inflation Risks and Global Impact
The OECD warned that ongoing trade conflicts could push up inflation, keeping interest rates higher for a prolonged period. “Significant risks remain,” the organization stated. “Further fragmentation of the global economy is a key concern. Higher and broader increases in trade barriers would hit growth around the world and add to inflation.”
While the trade war is expected to slow economic momentum worldwide, China appears to be an exception. The OECD slightly upgraded its growth forecast for China to 4.8%, indicating resilience despite U.S. trade restrictions. Meanwhile, the global economy is projected to slow from 3.2% in 2024 to 3.1% in 2025, largely due to trade tensions.
Warnings from Industry Leaders
The escalating trade dispute has also drawn concerns from major corporations. Tesla, the electric vehicle giant led by Elon Musk, recently warned in a letter to the U.S. Trade Representative that U.S. exporters could face “disproportionate impacts” if foreign governments retaliate against American tariffs.
UK Growth Also Downgraded
The OECD has also lowered its growth projections for the UK economy. It now expects the UK to grow by 1.4% in 2025, down from its previous estimate of 1.7%, and by 1.2% in 2026, slightly below the earlier projection of 1.3%. However, these forecasts remain more optimistic than those of the Bank of England, which recently cut its 2025 UK growth outlook to 0.75%.
As global trade tensions continue to rise, economists and policymakers remain cautious about the future trajectory of the world economy, with many urging diplomatic solutions to mitigate further disruptions.
