OECD: Trump's Tariffs to Stunt North American Growth and Fuel Inflation

The Organization for Economic Cooperation and Development (OECD) warns that President Donald Trump's tariff policies will significantly impede economic growth in the United States, Mexico, and Canada while simultaneously driving up inflation. This projection, as reported by Reuters, comes as Trump vows to move forward with a new wave of levies starting in early April.

The OECD's economic outlook update estimates that American households will bear a direct financial burden from the new import taxes. The agency suggests the anticipated economic slowdown will likely negate any potential income gains from the tariffs.

The report forecasts a slight slowdown in global growth, from 3.2% in 2024 to 3.1% in 2025 and 3.0% in 2026. These projections are lower than the OECD's previous estimates of 3.3% for both 2025 and 2026, which were issued in December.

Specifically, U.S. economic growth is projected to slow to 2.2% this year, a decrease from the OECD's earlier estimate of 2.4%. Furthermore, growth is expected to decelerate further to 1.6% next year, down from the previously estimated 2.1%.

Mexico's economy is predicted to suffer the most from the tariff increases, with a contraction of 1.3% this year and an additional 0.6% next year. This is a stark contrast to previous expectations of 1.2% and 1.6% growth, respectively. Canada's growth rate is also expected to slow to 0.7% for both this year and next, significantly below the previously forecast 2% for each year.

The Reuters report notes that recent data has reflected concerns about the tariffs' potential impact. The University of Michigan reported a significant drop in U.S. consumer sentiment in March, reaching a nearly 2-1/2-year low. Inflation expectations have also risen due to tariff-related worries. A recent survey of factory activity in New York State showed a dramatic decline, accompanied by surging input costs. Additionally, a separate survey of home builders revealed the lowest sentiment in seven months.

Trump's recent tariff announcements include 20% levies on all imports from China and a planned 25% tariff on most imports from Mexico and Canada, set to begin in April, as part of an effort to curb the flow of fentanyl into the U.S. He also implemented a flat 25% tariff on steel and aluminum imports last week without exemptions.

Speaking on Air Force One, Trump confirmed his intentions to impose both sectoral and reciprocal tariffs on April 2. He stated, "They charge us, and we charge them. Then, in addition to that, on autos, on steel, on aluminum, we're going to have some additional."

Colin Bird, Consul General of Canada in Detroit, voiced concerns about the inconsistency of these tariffs with the USMCA trade agreement, stating, "We're looking at significant tariffs inconsistent with the USMCA (U.S.-Mexico-Canada Agreement on trade) being imposed willy nilly, without regard for the commitments that we have negotiated with the United States." He added that this poses a credibility problem for the United States in its global negotiations.