Trump tariffs expected to dampen global economic growth, OECD says

The OECD has lowered its global economic growth forecasts for 2025 from 3.1% to 2.9%, citing the negative impact of unresolved trade disputes and tariffs, particularly those initiated by the Trump administration which have increased import taxes to 15.4% by mid-May 2025. According to the report, these trade barriers are expected to weaken economic prospects worldwide, although a reversal of these policies, easing of regulatory burdens, and resolution of international conflicts could improve confidence and investment.

Analysis

The Organization for Economic Cooperation and Development (OECD) has revised its global economic growth forecast for 2025 downwards from 3.1 percent to 2.9 percent, with a smaller downward adjustment for 2026, primarily attributing this to unresolved international trade disputes and the impact of tariffs. These trade tensions, notably stemming from the Trump administration's policies initiated around "Liberation Day" in April, have reportedly escalated import taxes to an average of 15.4 percent by mid-May 2025, a significant increase from approximately 2 percent in 2024. This outlook, described by OECD Chief Economist Álvaro Pereira as portending weakened economic prospects globally, aligns with similar grim forecasts from institutions like the International Monetary Fund, which recently warned of a "significant slowdown." The OECD report acknowledges considerable uncertainty surrounding these projections, citing the unpredictability of trade policy in 2025 and recent legal challenges, such as the federal Court of International Trade blocking some initial tariffs on May 28. However, the report also outlines potential mitigating factors, suggesting that a reversal of increased trade barriers could support growth and reduce inflation, while easing regulatory burdens and resolving conflicts in Europe and the Middle East could improve business confidence and investment incentives.

Key Decisions for Investors

• Investors should consider reassessing portfolio risk exposure in light of the OECD's lowered global growth forecasts and the heightened uncertainty stemming from trade policy, potentially favoring more defensive positioning.
• Closely monitor developments in US trade policy, including tariff implementations, legal challenges, and negotiations, as these are identified as key drivers of economic performance and market sentiment.
• Evaluate opportunities that could arise from a potential de-escalation of trade tensions or resolution of geopolitical conflicts, as the OECD report indicates these events could provide a significant boost to global economic confidence and growth.
• Given the projected slowdown and inflationary pressures linked to trade barriers, investors should pay heightened attention to leading economic indicators and central bank communications for signals of policy shifts or further economic deterioration.