Trump's trade war will collapse the global economy: OECD forecast

The Organization for Economic Co-operation and Development (OECD) warns that the escalation of the trade war, initiated by the new US president, is likely to harm global growth. This is reported by UNN with reference to Financial Times.

Details

In its interim forecast report published on Monday, the OECD warned that Donald Trump's trade war is already inflicting "significant damage" on the global economy. Global growth will slow this year and next. Inflation will be stronger than previously expected.

Global growth will slow from 3.2% last year to 3.1% and 3% in 2025 and 2026, respectively. Inflation will be more persistent than previously expected. Higher trade barriers will contribute to persistent inflation.

Examples of negative impact

Given the measures Trump has already made official, Mexico will be the hardest hit, entering recession from 2025 and reducing its gross domestic product (GDP) by 1.3%, which is 2.5 percentage points less than the OECD expected in December 2024.

Canada's growth forecasts were also lowered: the report indicates a meager activity growth of 0.7% in both 2025 and 2026, a consequence of a 1.3 percentage point forecast correction.

US GDP growth will slow from 2.8 percent last year to 2.2 percent this year and 1.6 percent in 2026, the OECD said. In addition, growth in the US this year will be 0.2 percentage points slower than previously expected by the OECD.

American consumers will take a heavy hit, equivalent to a reduction in real net disposable income per household of more than $1,600. Interest rates will have to be raised by a full percentage point.

Economist's comment

It is clear that trade uncertainty and economic policy uncertainty are causing significant damage. Consumer confidence has fallen in many countries, including Canada, Mexico, the US, and some others.

The OECD called on the US president (without naming him) to reduce trade tensions and tariffs he has already imposed, and to make his policies more predictable for the benefit of the global economy.

Recall

Donald Trump announced a 50% tariff increase on Canadian steel and aluminum in response to Ontario's 25% increased electricity tariff.

The EU is launching countermeasures against the US over steel and aluminum tariffs.

The European Union reacted to US tariffs on steel and aluminum by publishing a list of goods that will be affected by the tariffs. It includes meat, poultry, alcohol, chewing gum, and women's negligees.

Trump threatened to impose a 200% tariff on European wines if the EU does not lift the 50% tariff on US whiskey.