President Donald Trump’s turbulent tariff policy is projected to cause a sharper slowdown in economic growth in the United States and around the world than previously expected, the Organization for Economic Co-Operation and Development (OECD) found in a Tuesday report.
The organization forecast that GDP growth in the United States will slow to nearly half its 2024 pace in the next two years, falling from 2.8% last year to just 1.6% in 2025 and 1.5% in 2026 due to “rising trade costs” driven by Trump’s import levies.
[time-brightcove not-tgx=”true”]Global growth as a whole is expected to slow from 3.3% in 2024 to 2.9% in both 2025 and 2026, dropping below the at least 3% growth recorded year-over-year since 2020.
The forecast is notably grimmer than the one the OECD offered in March, when it projected the American economy would grow at a 2.2% pace this year and the world as a whole would experience 3.1% growth.
“The global economy has shifted from a period of resilient growth and declining inflation to a more uncertain path,” OECD Secretary-General Mathias Cormann said in a statement. “Governments need to engage with each other to address any issues in the global trading system positively and constructively through dialogue – keeping markets open and preserving the economic benefits of rules-based global trade for competition, innovation, productivity, efficiency and ultimately growth.”
Why are Trump’s tariffs expected to slow growth?
The tariffs Trump has imposed on nearly every country in the world—and the uncertainty surrounding his economic policies—could cause “significant disruptions” to the global supply chain, which was hit hard in recent years by the COVID-19 pandemic, the OECD warned.
“Global trade growth is likely to slow substantially over the next two years, after significant front-loading ahead of expected tariff increases, and uncertainty is expected to hold back business investment,” the report says.
Trump has repeatedly announced and then delayed tariffs since taking office in January with the stated aim of reducing trade deficits and bolstering American manufacturing. The future of most of the import taxes, which the President initially imposed against U.S. trading partners around the world in early April, has been in limbo as countries have worked to negotiate better deals and legal challenges have worked their way through the courts.
An order from the U.S. Court of International Trade last week cast the shifting trade policy into further chaos by briefly striking down the bulk of the levies, before a stay from a federal appeals court the next day allowed them to remain in place for the time being. Trump then announced plans to double tariffs on aluminum and steel imports, threatening to further escalate the tensions surrounding his trade wars.
What does all this mean for inflation?
Increased trade costs resulting from Trump’s tariff agenda could also drive up inflation, the OECD said, though it noted the impact could be offset by “weaker commodity prices.”
Inflation ticked down to 2.3% in April after climbing as far as 9.1%—its highest rate in four decades—in 2022. Consumer confidence, a key inflation indicator, also improved in the U.S. for the first time in five months this May.
But prior to the back-and-forth court rulings on Trump’s import taxes last week, many large retailers in the U.S. walked back their previous vows not to increase the prices of their products, with some citing the tariffs as contributing to their decisions.
Walmart announced price hikes in May in response to tepid first quarter results, stating the increase was at least in part due to the import taxes. In response, Trump suggested the company “eat the tariffs.”
Other businesses that have since announced price increases have been less explicit.
Target cited tariffs as just one to a series of factors impacting the company’s bottom line, including customer boycotts over their rollback of DEI policies and general consumer confidence. Others, including Subaru and Nike, have not directly attributed the changes in their prices to tariffs.
Nike said its announced price hikes were part of their regular market adjustments. “We regularly evaluate our business and make pricing adjustments as part of our seasonal planning,” Nike told TIME in a statement. Price increases for the corporation have been in effect since June 1.
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