Trump trade wars crippling global growth says new OECD report

The Organisation for Economic Co-operation and Development (OECD) has issued a warning that escalating trade wars initiated by Donald Trump are eroding progress on economic growth and inflation reduction. The Paris-based organisation has downgraded its global growth forecasts for 2025 and 2026 due to heightened trade barriers and geopolitical uncertainty.

According to the OECD’s interim economic outlook report, global economic growth is set to decline from 3.2% in 2024 to 3.1% in 2025, with further risks looming. Should Trump’s plans to impose 25% tariffs on nearly all imports from Canada and Mexico proceed, these economies will face substantial setbacks. Mexico is projected to enter a severe recession, with output shrinking by 1.3% this year and 0.6% in 2026. Canada’s growth forecasts have been halved, and the United States is also expected to suffer, with its growth predictions lowered to 2.2% for 2025 and 1.6% for 2026.

Broadening the impact, the OECD revealed that such trade measures will not only exacerbate inflation but also deepen economic fragmentation. The report emphasised that coordinated international efforts are critical to avoiding widespread retaliatory tariffs, which would leave lasting damage on global living standards.

China’s economy, too, will slow down, with growth expected to drop further from 4.8% this year to 4.4% by 2026. In a scenario involving 10% blanket tariffs on all US imports, combined with retaliatory responses from trade partners, global output could decline by 0.3% within three years, with the US potentially seeing a 0.7% drop in its economic output.

Rachel Reeves, the UK Chancellor, commented on the OECD’s observations, linking them to mounting pressures ahead of Britain’s spring budget statement. She noted the rapid global changes and their implications on trade uncertainty, emphasising the need for stability and policies that protect people while fostering resilience. Despite this, the OECD still projects the UK as being among the fastest-growing G7 economies after the US, although inflation in the UK is expected to remain at 2.7% this year, easing slightly to 2.3% in 2026.

The OECD’s report underscores the urgent need for governments to collaboratively address these trade tensions. The consequences of unchecked tariff escalations threaten to derail global economic recovery efforts, increase inflation, and severely hinder progress toward sustainable growth.