OECD Cuts US Economic Outlook Citing Inflation, Tariff Wars

The Trump administration justifies tariffs on foreign imports as a way to reduce existing trade imbalances and boost jobs within the country.
OECD Cuts US Economic Outlook Citing Inflation, Tariff Wars
Container ships are docked at the Port of Oakland in Oakland, Calif., on Dec. 9, 2024. Justin Sullivan/Getty Images
Naveen Athrappully
Updated:
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Economic growth in the United States and globally could be at risk amid rising prices and countries implementing tariffs against imports, according to a new report by the Organisation for Economic Co-operation and Development (OECD), an intergovernmental organization of 38 member nations, mostly high-income economies.

“Annual real GDP growth in the United States is projected to slow from its very strong recent pace, to 2.2 percent in 2025 and 1.6 percent in 2026,” after rising by 2.8 percent last year, OECD said in the March 17 report. “Global GDP growth is expected to moderate from 3.2 percent in 2024 to 3.1 percent in 2025 and 3.0 percent in 2026.”

Inflationary pressures pose a headwind to growth in several countries, with prices recently rising “in an increasing share of economies.” During the 2025–26 period, inflation is expected to be “higher than previously expected, although still moderating as economic growth softens,” according to the report.

Another risk to growth is trade fragmentation, with a potential tariff war dampening the sector.

For instance, in a situation where the United States raises tariffs on all non-commodity imports coming from other nations, it could trigger retaliatory tariffs on a similar scale on U.S. imports. If the scenario continues, global output could fall by roughly 0.3 percent by the third year, the report said. During this period, inflation could rise by 0.4 percent per annum on average.

“The impact of these shocks would be magnified if policy uncertainty were to increase further or there was widespread risk repricing in financial markets. These would add to the downward pressures on corporate and household spending around the world,” the report states.

The Trump administration has cited various reasons such as fentanyl trafficking, existing tariffs imposed on U.S. goods, and trade deficits to justify the new tariffs placed on foreign imports.

Since coming to power in January, the administration has imposed 25 percent tariffs on Mexico and Canada, two 10 percent tariffs totaling 20 percent on China over and above existing tariffs, and 25 percent tariffs on all steel and aluminum imports.

In February, President Donald Trump said the steel and aluminum tariffs were necessary to prevent countries from taking advantage of the United States, to boost domestic production, and to bring back jobs to America.

“This is a big deal, the beginning of making America rich again,” he said. “Our nation requires steel and aluminum to be made in America, not in foreign lands.”

On Feb. 13, the White House highlighted how reciprocal trade tariffs can be used to deal with the issue of America’s trade deficit.

“The trade deficit of the United States threatens our economic and national security, has hollowed out our industrial base, has reduced our overall national competitiveness, and has made our nation dependent on other countries to meet our key security needs,” the White House said.

“By making trade more reciprocal and balanced, we can reduce the trade deficit; grow the United States economy; and improve our trade relationships with trading partners to the benefit of American workers, manufacturers, farmers, ranchers, entrepreneurs, and businesses.”

Earlier that month, the White House said that despite trade only accounting for 24 percent of U.S. GDP, America’s trade deficit in goods was more than $1 trillion in 2023, the largest in the world. In contrast, trade accounted for 73 percent of Mexico’s GDP and 67 percent of Canada’s GDP.

“Tariffs are a powerful, proven source of leverage for protecting the national interest,” it said.

The stock markets have reacted negatively following Trump’s tariffs on trade. The Dow Jones Industrial Average has dropped by nearly 6.5 percent over the past month, and the Nasdaq has fallen by more than 11 percent, according to Bloomberg.

Some lawmakers have warned about the negative effects of the tariffs. A report released this month by Congress’s Joint Economic Committee (JEC) said that the Trump administration’s tariffs “will drive up costs for the average American family between $1,600 and $2,000 per year.”

The report was released by Rep. Don Beyer (D-Va.), who serves as the senior House Democrat on the JEC.

“These tariffs also impact the price of domestically produced goods by causing U.S. producers to raise prices if their supply chain relies on imported raw materials subject to the tariffs,” the report states.

Meanwhile, businesses are optimistic about the prospects of the U.S. economy amid the Trump administration’s imposing tariffs on foreign nations.

Small-business owners “greeted the new year with a surge in optimism. 17 percent (seasonally adjusted) now view the current period as a good time to expand substantially, up from just 4 percent a few months ago,” said a Feb. 11 survey conducted by the National Federation of Independent Business.
Meanwhile, a measure of U.S. CEO confidence showed that optimism had surged among executives in the first quarter from the previous quarter. In fact, CEO optimism hit the highest level in three years.
Naveen Athrappully
Naveen Athrappully
Author
Naveen Athrappully is a news reporter covering business and world events at The Epoch Times.