The Organisation for Economic Co-operation and Development (OECD) has warned that President Donald Trump's trade policies, particularly his decision to impose tariffs, are set to hinder economic growth in the U.S., Canada, and Mexico, while exacerbating inflation. In its revised global economic outlook, the OECD has lowered its growth forecast for the global economy, reducing projections from 3.3% to 3.1% for this year and to 3.0% by 2026. The primary cause of this downward adjustment is the escalation of trade barriers, with the U.S. set to slow considerably, experiencing growth of just 2.2% in 2025, which will further decelerate to 1.6% by 2026. This marks a notable reduction from earlier forecasts of 2.4% and 2.1%, respectively.
Mexico will bear the brunt of the trade disruptions, with the economy predicted to contract by 1.3% this year and a further 0.6% next year, a sharp contrast to previous expectations of modest growth. Meanwhile, Canada’s economic performance will also suffer, with growth expectations slashed to just 0.7% for both 2025 and 2026, compared to earlier predictions of around 2%.
While some large emerging markets, like China, are expected to maintain stability due to increased government support, North America faces much steeper challenges. The OECD also cautioned that a broader escalation of tariffs could cause even more significant global damage. Further increases in trade restrictions would not only damage growth, but also drive up inflation, which would leave central banks with few options other than to keep interest rates higher for a longer period.
The U.S. economy, in particular, would be severely impacted, potentially causing a loss of up to $1,600 per household due to higher costs. This economic drag would offset any potential benefits from tariff revenue, making it insufficient to cover planned tax cuts. The OECD also noted that the global economy would fare even worse if the U.S. were to expand the trade war by imposing tariffs on all non-commodity imports, leading to greater economic contraction worldwide.
The report also highlighted the adverse effects of these trade policies on the UK, which, despite being less directly affected by the trade war, will still face slower growth due to reduced trade and investment. Growth in the UK is now expected to be lower than previously forecast, with projections reduced by 0.3 percentage points to 1.4% for this year.