The impact of the trade war extends far beyond just tariffs, with the Organization for Economic Co-operation and Development (OECD) warning of a broader global economic hit. The OECD has significantly lowered its global economic growth projections, now anticipating a decline from 3.3% in 2024 to 2.9% in both 2025 and 2026, illustrating the far-reaching consequences.
The OECD’s latest outlook report highlights that “weakened economic prospects will be felt around the world, with almost no exception,” leading to “lower growth and less trade [that] will hit incomes and slow job growth.” This indicates a systemic slowdown, affecting incomes and employment, not just trade volumes. The United States, Canada, Mexico, and China are identified as major contributors to this anticipated global economic contraction.
Crucially, the OECD emphasizes that “protectionism” will put pressure on inflation, meaning costs for goods and services will rise for consumers globally, not just in countries imposing tariffs. This ripple effect on prices extends the economic impact beyond direct trade barriers. The report also highlights the elevated risk this poses for developing nations, especially those with high public debt, as they navigate increased borrowing costs in an inflationary environment.
In response to these looming threats, the OECD advises central banks to “remain vigilant” in monitoring inflation, even if immediate interest rate hikes are not anticipated. Furthermore, the report stresses the critical need for increased investment to revitalize economies and strengthen public finances, recognizing that a holistic approach is required to counteract the widespread economic damage.
