Date: June 3, 2025
The Organisation for Economic Co-operation and Development (OECD) has significantly revised its forecast for U.S. economic growth in 2025, projecting a slowdown to 1.6% from an estimated 2.8% in 2024. This notable reduction reflects mounting concerns over the impact of President Donald Trump’s aggressive tariff policies, which have triggered global trade disruptions and heightened economic uncertainty.
Tariff Escalations and Their Domestic Impact
Since returning to office, President Trump has implemented sweeping tariff measures targeting a broad spectrum of imported goods. The U.S. average tariff rate has risen sharply from around 2.5% to more than 15%, the highest level seen since the late 1930s. Major imports affected include steel, aluminum, automotive parts, and electronics, leading to increased production costs for American manufacturers and higher retail prices for consumers.
Businesses across various sectors report delaying investment decisions due to unpredictable trade policies. Many firms are re-evaluating supply chains, relocating operations to avoid tariff exposure, or slowing down hiring and expansion plans. These shifts have collectively contributed to a deceleration in business investment, which the OECD identifies as a key driver behind the weaker growth forecast.
Widespread Global Consequences
The effects of U.S. trade policies are reverberating worldwide. Several of America’s key trading partners, including China, the European Union, Canada, and Mexico, have responded with retaliatory tariffs on American exports. These measures have hit U.S. farmers, manufacturers, and exporters particularly hard, resulting in a drop in foreign demand for American goods.
The OECD has also cut its global economic outlook, anticipating that growth will slow to 2.9% annually in both 2025 and 2026, down from 3.3% in 2024. Countries closely integrated with the U.S. economy, like Canada and Mexico, are projected to face notable slowdowns. Canada’s growth is forecast to decelerate to just 0.7%, while Mexico’s economy is expected to contract by 1.3%.
Economic Uncertainty and Business Sentiment
Trade-related uncertainty has cast a long shadow over business sentiment. Companies cite fluctuating tariff rates and unpredictable trade negotiations as major deterrents to long-term planning. Many multinational corporations have begun diversifying their markets and investing in alternative trade routes to mitigate risk.
Financial markets have also shown signs of unease, with stock indices experiencing periodic volatility following tariff announcements. Bond yields have declined amid investor concern over the long-term implications of sustained trade conflicts.
Inflationary Pressures and Consumer Strain
One of the most immediate consequences of rising tariffs is inflation. As tariffs push up the cost of imported goods, businesses often pass those increases on to consumers. The OECD warns that inflation could rise to as much as 4% by the end of 2025, eroding consumer purchasing power and weighing on household budgets.
Higher prices for essentials such as food, clothing, electronics, and household goods are likely to affect middle- and lower-income households disproportionately. Economists caution that unless wage growth keeps pace with rising living costs, consumer spending—a key pillar of the U.S. economy—may decline.
Policy Recommendations and Strategic Shifts
In response to the worsening outlook, the OECD recommends a shift in policy to ease trade tensions and restore global economic stability. Experts suggest the U.S. government should engage in multilateral negotiations, reduce tariffs, and commit to more consistent trade practices.
Additionally, the report advocates for enhanced investment in domestic infrastructure and technology to boost productivity and offset the negative effects of reduced trade. Policymakers are encouraged to prioritize education, workforce development, and innovation to strengthen long-term economic resilience.
Looking Ahead
The current trajectory presents significant challenges for the U.S. economy. As businesses, consumers, and policymakers grapple with the consequences of protectionist measures, the importance of clear, predictable economic policy becomes increasingly evident.
With global interdependence at an all-time high, actions taken by the U.S. reverberate around the world. A recalibration of trade strategy could help stabilize the outlook and reignite growth both at home and abroad. The coming months will be critical in determining whether the U.S. can navigate these headwinds and chart a more sustainable economic path.