By Melanie Cray, Senior Correspondent
On June 3, 2025, the Organisation for Economic Co-operation and Development (OECD) significantly downgraded its U.S. economic growth projections, citing escalating trade tariffs and mounting policy uncertainty. The OECD now anticipates U.S. GDP growth to decelerate from 2.8% in 2024 to 1.6% in 2025, marking a substantial revision from its earlier forecast of 2.2% for the same period.
Trade Tariffs Erode Economic Momentum
The OECD attributes the sharp downturn to President Donald Trump’s aggressive tariff policies, which have disrupted global trade dynamics. The U.S. effective tariff rate has surged to 15.4%, the highest since 1938, following the implementation of sweeping tariffs on imports from key trading partners, including China, Canada, and Mexico.
These protectionist measures have not only strained international relations but have also led to retaliatory tariffs from affected countries, further exacerbating the situation. The resultant trade tensions have disrupted supply chains, increased costs for businesses, and dampened consumer confidence.
Manufacturers and retailers in the U.S. are particularly feeling the squeeze, as the increased cost of imported components and goods has forced many to raise prices or absorb losses. The ripple effect is being felt across various sectors, from automotive to agriculture, with many businesses re-evaluating their sourcing strategies and operational models.
Global Growth Outlook Dims
The repercussions of U.S. trade policies extend beyond its borders. The OECD has also lowered its global GDP growth forecasts to 2.9% for both 2025 and 2026, down from 3.3% in 2024. Major economies such as Canada, Mexico, and China are expected to bear the brunt of this slowdown, with Canada and Mexico facing significant downturns due to their close trade ties with the U.S.
In Europe and Asia, economic uncertainty is growing, with businesses and governments expressing concern over the long-term impact of U.S. protectionism. The potential for sustained trade conflicts could lead to a fragmentation of global supply chains and a reorientation of trade alliances, which would further hinder economic recovery.
Inflationary Pressures Mount
The imposition of tariffs has led to increased import prices, contributing to rising inflation. The OECD projects U.S. inflation to approach 4% by the end of 2025, a development that could delay potential interest rate cuts by the Federal Reserve. This inflationary trend poses additional challenges for policymakers aiming to balance economic growth with price stability.
Consumers are already beginning to feel the pinch, with everyday goods becoming more expensive. Energy prices have also been volatile, partly due to geopolitical tensions and partly because of domestic policy shifts. This combination of factors is expected to weigh heavily on household budgets and overall consumer spending.
Financial Markets React
In response to the OECD’s revised forecasts, U.S. stock futures experienced a decline, reflecting investor concerns over the economic outlook. Major indices, including the S&P 500, Nasdaq, and Dow Jones Industrial Average, have shown increased volatility amid the ongoing trade tensions. The automotive sector, in particular, has been under pressure due to proposed increases in steel tariffs, which could elevate manufacturing costs.
Market analysts are urging caution, noting that while the long-term fundamentals of the U.S. economy remain relatively strong, the current policy environment introduces significant unpredictability. Investment firms are adjusting their growth models, and many are recommending a more defensive portfolio strategy for the near term.
Calls for Policy Reassessment
Economists and international bodies have urged the U.S. administration to reconsider its trade strategies. The OECD emphasized the need for de-escalating trade tensions and restoring open markets to safeguard global economic progress. Failure to address these issues could lead to prolonged economic stagnation and increased financial market instability.
Policymakers are facing growing pressure from domestic industries and international allies to adopt a more collaborative approach. The coming months are likely to see intensified diplomatic efforts aimed at resolving key trade disputes and charting a more sustainable path forward for global commerce.
Looking Ahead
The OECD’s latest report underscores the significant impact of trade policies on economic performance. As the U.S. navigates the complexities of international trade relations, policymakers face the challenge of fostering economic growth while managing inflation and maintaining global partnerships. The coming months will be critical in determining the trajectory of both the U.S. and global economies.
