By Darren Shields, Business Analyst
The Organisation for Economic Co-operation and Development (OECD) has sharply downgraded its forecast for U.S. economic growth, projecting a slowdown to 1.6% in 2025 from 2.8% in 2024. This significant deceleration is primarily attributed to President Donald Trump’s aggressive tariff policies, which have disrupted global trade dynamics and heightened economic uncertainty. The OECD warns that these trade tensions are undermining business investment and slowing economic momentum.
Tariff Escalation and Economic Impact
Since returning to office, President Trump has implemented sweeping tariffs, raising the average U.S. tariff rate from approximately 2.5% to 15.4% by mid-May 2025—the highest since 1938. These measures include 25% tariffs on imports from Canada and Mexico, and increased tariffs on Chinese goods, leading to retaliatory actions from these trading partners. The OECD notes that trade equivalent to over 2% of world GDP is now directly facing higher tariffs, indicating a disruption more severe than during the U.S.-China trade tensions of 2018-19.
The OECD’s report highlights that the U.S. economy is expected to further decelerate to 1.5% growth in 2026. Factors contributing to this slowdown include high economic policy uncertainty, a significant reduction in net immigration, and a sizeable reduction in the federal workforce. The report also underscores the role of diminished consumer confidence and restricted access to global markets, which have combined to curtail expansion plans for many businesses.
Global Repercussions
The impact of the U.S. tariffs extends beyond its borders. The OECD has also downgraded global economic growth forecasts for 2025 and 2026 to 2.9%, citing Trump’s tariffs, policy uncertainty, and weakening demand, especially in the U.S. and China. The organization warns that further increases in trade barriers and declining business and consumer confidence pose serious risks to future economic growth.
Banking and financial leaders worldwide have expressed concern. Central banks in Europe and Asia have issued statements highlighting increased volatility and unpredictability in trade flows. The IMF and World Bank have called for renewed multilateral cooperation to stabilize global markets and mitigate long-term economic fragmentation.
Inflation and Consumer Impact
The OECD projects that annual headline inflation in the U.S. is set to rise to 3.9% by the end of 2025 due to higher import prices but is expected to ease throughout 2026. The organization cautions that most of the impact of tariff increases will be borne by consumers and businesses, with around 10% of the consumer basket in the United States being imported.
Rising costs are already evident in sectors reliant on foreign materials, including construction, automotive, and electronics. Industry analysts predict that prices for household appliances, cars, and consumer electronics will climb further if the current tariff regime persists.
Market Reactions
Following the OECD’s downward revision of U.S. and global economic growth forecasts, U.S. stock futures have trended lower. Automakers such as General Motors, Ford, and Stellantis are under pressure after President Trump’s announcement to double steel import tariffs, which could raise production costs.
Wall Street analysts are advising caution, with some downgrading growth outlooks for major U.S. corporations with significant international exposure. Investors are seeking safer assets, and there’s a notable uptick in bond market activity and precious metals purchases.
Policy Outlook
The OECD urges governments to resolve trade disagreements collaboratively to avoid escalating tariffs. The organization emphasizes the urgent need for international agreements to reduce trade barriers to stimulate investment and offset rising prices.
Trade experts suggest that bilateral and multilateral discussions should focus on modernizing trade frameworks to better reflect today’s interconnected global economy. They advocate for re-establishing strong international trade alliances and fostering dialogue to preempt further retaliatory measures.
While the U.S. administration maintains that tariffs are necessary to protect domestic industries and jobs, critics argue that the broader economic fallout could negate any short-term gains. The coming months will be crucial in determining whether policymakers can strike a balance between national interests and global economic stability.
