In its latest forecast, the OECD predicts that U.S. President Donald Trump’s escalating trade tariffs will reach world growth and increase inflation.
Canada and Mexico are expected to see their biggest influence as they impose the worst tariffs on them, but growth in the U.S. is expected to take a hit, too.
The OECD’s growth outlook for Canada halved this year and the next, while Mexico plunged Mexico into a recession.
Trump has imposed a 25% tariff on all steel imports. The U.S. also imposes a 25% tariff on other imports from Mexico and Canada – with some exemptions – a 20% levied on Chinese goods.
In response, both Canada and the EU announced retaliatory tariffs.
The Paris-based OECD said higher trade barriers and “increased geopolitical and policy uncertainty” are touching on investment and household spending.
In the latest OECD forecast:
- Canada’s economy is expected to grow only 0.7% this year, compared with the forecast for the previous two years.
- Mexico now expects revenues of 1.3% this year and 0.6% next year, rather than a 1.2% increase and 1.6% as mentioned earlier
- Growth in the U.S. has also been downgraded, with growth of 2.2% this year and 1.6% in 2025, down from previous forecasts of 2.4% and 2.1%
- Despite the U.S. tariffs on China, the OECD’s growth forecast for the country has increased slightly to 4.8%.
The OECD said the developing trade war would push up inflation, meaning interest rates could last longer.
“There are still significant risks,” it warned. “The further dispersion of the global economy is a key issue.
“Higher and wider growth in trade barriers will hit global growth and increase inflation.”
For the world economy, growth will drop from 3.2% in 2024 to 3.1% in 2025, largely due to the consequences of trade tensions.
last week, Elon Musk’s electric car company Tesla warns The trade struggle could harm it and other U.S. exporters.
In a letter to the U.S. Trade Representative, the company said that U.S. exporters “face disproportionate effects” if other countries retaliate against Trump’s tariffs.
The OECD lowered its growth in the UK economy to 1.4% in 2025, which was its previous forecast of 1.7% and its forecast for 2026 fell from 1.3% to 1.2%.
However, the forecast is more optimistic than the Bank of England, which lowered its 2025 UK growth forecast to 0.75% earlier this month.
