Trump tariffs to shrink US economic growth to 1.6%, global to 2.9%: OECD

The OECD notes that Trump's policies have raised average US tariff rates from around 2.5 per cent when he returned to the White House to 15.4 per cent, highest since 1938

Amid rising trade tensions triggered by Donald Trump’s tariff hikes, the Organisation for Economic Co-operation and Development (OECD) on Tuesday projected that US economic growth will slow to 1.6 per cent in 2025 — down from 2.8 per cent the previous year.

 

The Paris-headquartered organisation also indicated that the growth will further worsen to 1.5 per cent in 2026.

 

The slowdown can be attributed to increased tariff rates, OECD said in its ‘Economic Outlook 2025’. The report highlights that Trump’s policies have raised average US tariff rates from around 2.5 per cent when he returned to the White House to 15.4 per cent, highest since 1938.

 

Trump has imposed 10 per cent tariffs on imports from almost every country, and additional 25 per cent on steel, aluminum and auto products. Last week, he also said that he would double the tariff on steel and aluminium imports to 50 per cent to protect the domestic industry.

 

“Domestic price increases are likely to follow higher tariffs, although the exact magnitude is subject to some uncertainty. Around 10 per cent of the consumer basket in the United States is imported, directly and indirectly, before taking into account food and energy. It is likely that most of the impact of tariff increases will be borne by consumers and businesses,” the OECD noted.

 

OECD chief economist Álvaro Pereira said, “Additional tariffs would further reduce global growth prospects and fuel inflation, dampening global growth even more.” 

 

Global economic slowdown

 

The risk of economic slowdown isn’t only looming over the US, but will also have an impact on the world economy. The OECD projected that the world economic growth will drop to 2.9 per cent in 2025 and 2026. This marks a significant decline from growth of 3.3 per cent last year and 3.4 per cent in 2023.

 

Referring to the recent inflation decline across most countries, Pereira said, “Protectionism is adding to these inflationary pressures, and inflation expectations have risen substantially in several countries.” 

 

Similarly, China, the world’s second-largest economy, is projected to see its growth slow from 5 per cent in 2024 to 4.7 per cent in 2025 and further to 4.3 per cent in 2026.

 

To cushion the impact, the Chinese government has announced a series of support measures, including interest rate cuts, increased bank lending, and new funding for initiatives such as industrial upgrades, reported Associated Press.

 

However, amid a global slowdown, the OECD projected steady growth for India, forecasting a 6.3 per cent expansion in 2025, up from 6.2 per cent in 2024. Growth is expected to inch further up to 6.4 per cent in 2026, the report mentioned.