President Donald Trump’s effort to raise tariffs on trading partners around the world will reduce global trade and raise inflation if the levies stay in place, according to a new report from the Organization for Economic Co-operation and Development.
In the wake of Trump’s decision to impose 25% tariffs on imports from Mexico and Canada, as well as a 25% tariff on all steel and aluminum imports and a 20% tariff on imports from China, the OECD cut its growth estimate for Canada down to 0.7% in 2025 — a reduction of 1.3 percentage points from the OECD’s outlook in December. Mexico is expected to fall into recession in 2025 because of the tariffs, with the economy shrinking by 0.6%.
The projected U.S. growth rate has also taken a hit, with the estimate falling to 2.2% for 2025, down two-tenths of a point, and 1.6% for 2026, down five-tenths of a point. Global growth will be lower, as well, with the estimate now reduced to 3.1%, down from 3.3% previously.
At the same time, inflation will be higher as prices adjust upward in response to the tariffs. The OECD raised its 2025 inflation estimates to 2.8% for the U.S. (up 0.7 points), 3.1% for Canada (up 1.1 points) and 4.4% for Mexico (up 1.1 points). The average inflation rate for the Group of 20 nations is estimated to be 3.8% in 2025, up 0.3 from the previous projection.
Things can always get worse: The OECD analysis assumes no further tariff increases occur, but there is a chance that countries could ratchet tariffs higher around the world in an all-out trade war. If a global trade war does develop, then growth rates will be lower and inflation will higher than the current estimates suggest.
"The high level of geopolitical and policy uncertainty at present brings with it substantial risks to the baseline projections,” the report says. “Developments in global trade policy are difficult to predict, but a proliferation in barriers to international trade and broader fragmentation of the global economy, including through moves to reciprocate existing perceived trade barriers, could add considerably to the adverse impact of the tariff changes incorporated in the baseline projections and weaken business investment by more than anticipated.”