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U.S. Economic Outlook Dims as Tariff Tensions Mount, OECD Warns

The Organisation for Economic Co-operation and Development (OECD) has significantly downgraded its economic growth forecast for the United States and the global economy, citing escalating trade tensions, policy unpredictability, and the lingering effects of former President Donald Trump’s aggressive tariff policies.

🇺🇸 U.S. Growth Forecast Falls Sharply

According to the OECD’s updated projections released on Tuesday, the U.S. economy is now expected to grow by only 1.6% in 2025 and 1.5% in 2026, a sharp reduction from the 2.2% growth it had forecast just three months ago in March. The cut reflects heightened uncertainty surrounding fiscal and trade policy under Trump’s administration, coupled with weaker public sector hiring and declining net immigration rates.

“The downward revisions largely stem from a toxic combination of elevated trade barriers, reduced labor force growth, and growing investor wariness,” the OECD report stated.

Global Growth Takes a Hit, North America the Worst Affected

Global GDP growth is projected to slow from 3.3% in 2024 to 2.9% in 2025 and remain at that level in 2026, based on current tariff levels as of mid-May. The OECD emphasized that much of this drag is concentrated in North America — particularly the U.S., Canada, and Mexico — while other regions, including Europe and parts of Asia, are seeing relatively minor adjustments to their economic outlooks.

Earlier projections had anticipated global GDP to rise by 3.1% in 2025 and 3.0% in 2026, signaling that persistent trade disruptions and uncertainty have now become structural headwinds rather than short-term shocks.

Trump’s Trade War: A Cloud Over Confidence

The report links much of the weakened sentiment to Trump’s continuation and expansion of reciprocal tariffs that were originally implemented during his first term. Just this past month:

• Trump doubled steel tariffs to 50%.
• A U.S. appeals court reinstated tariffs that had previously been struck down by the Court of International Trade.
• China and the European Union responded with retaliatory levies, including up to 84% tariffs on select U.S. goods.

These back-and-forth measures have created a volatile business climate, discouraging investment and weakening supply chains globally.

“Increased barriers to trade, combined with tighter financial conditions and declining consumer confidence, have markedly eroded short-term growth potential,” the OECD added.

Inflation Pressures Resurface

As trade costs rise, inflation is becoming another pressure point. The OECD adjusted its inflation expectations upward for the U.S., forecasting it to hit 3.2% in 2025, up from the previous 2.8% estimate. Analysts now warn that inflation could approach 4% by late 2025 if current tariff policies remain unchanged.

By contrast, the inflation forecast for the broader G20 group has been revised downward to 3.6%, reflecting a disparity between U.S. and global inflationary pressures. The OECD notes that while tariffs increase consumer prices, weaker global commodity prices are helping to partially offset inflation in some regions.

Legal Uncertainty Adds Fuel to Economic Instability

Adding to the uncertainty is the legal back-and-forth around tariff implementation. With U.S. courts delivering conflicting rulings, companies face unpredictable operating costs and international exporters are uncertain about market access. This legal volatility, combined with a reduced federal workforce and lower immigration-driven labor supply, compounds the drag on productivity and output.

�What This Means for Businesses and Investors

For businesses dependent on international supply chains, the OECD’s updated guidance underscores the growing risk of long-term structural disruption. Import-heavy industries like automotive, electronics, and retail are expected to be hit hardest by higher input costs and weaker consumer demand.

Investors, meanwhile, are being urged to brace for slower growth and potential inflationary surprises, especially in the U.S., as tariff-driven volatility continues to cloud the outlook.

Conclusion

The OECD’s latest economic forecast paints a sobering picture: unless trade tensions ease and domestic policies stabilize, both the U.S. and global economies could face prolonged periods of slow growth. With inflation rising and policy clarity in short supply, the path ahead appears increasingly uncertain for markets, policymakers, and workers alike.

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