It's official: Trump's tariffs are damaging the economy

The OECD has cut its 2025 US economic growth forecast from 2.8% to 1.6%, citing the impact of President Trump's tariffs, which have driven the US import rate to its highest level since 1938 at 15.4%. This policy is expected to slow global growth to 2.9% in both 2025 and 2026, down from 3.3% in 2024, due to eroded investment, disrupted supply chains, and rising inflation, particularly in the US, where price growth is projected to approach 4% by year-end; the OECD urges de-escalation of trade tensions to mitigate further economic damage.

Analysis

The Organization for Economic Co-operation and Development (OECD) has significantly revised its 2025 US economic growth forecast downwards from 2.8% to 1.6%, attributing this reduction to President Donald Trump's tariffs, which have pushed the US import rate to 15.4%, its highest level since 1938. This protectionist stance is anticipated to have wider global ramifications, with the OECD forecasting a slowdown in global growth from 3.3% in 2024 to 2.9% in both 2025 and 2026. The deceleration is expected to be most pronounced in the US, Canada, Mexico, and China, where growth is projected to fall to 4.7% in 2025 and 4.3% in 2026 from 5% last year. The OECD highlights that these trade policies are eroding investment, disrupting supply chains, and stoking inflation, particularly in the US, where price growth is projected to approach 4% by year-end. Amid these concerns, the OECD urges governments to de-escalate trade tensions and roll back tariffs. Supporting this cautious outlook, Deutsche Bank also projects US GDP growth at 1.6% for the current year and 1.7% in 2026, while noting that recent developments might lead to a 'turbulent but sustained path toward trade de-escalation,' though uncertainty remains.

Key Decisions for Investors

• Investors should exercise heightened caution and reassess allocations to assets sensitive to global trade dynamics and decelerating economic growth, particularly in sectors directly impacted by the described US tariffs and retaliatory measures.
• Closely monitor upcoming US inflation figures, with projections approaching 4%, as persistent inflationary pressures could prompt more aggressive central bank responses, impacting fixed income and equity valuations.
• Consider adopting a more defensive investment posture in light of the OECD's significantly reduced growth outlook and the stated risks linked to trade protectionism, while remaining vigilant for any policy shifts towards trade de-escalation which could present tactical opportunities or mitigate downside risks.