OECD Warns Global Economy Yet to Feel Full Force of Trump Tariffs
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Short-Term Growth Resilience Masks Medium-Term Risks Trade Policy Uncertainty Threatens Global Stability
The Organisation for Economic Co-operation and Development (OECD) has sounded a cautious alarm over the trajectory of the global economy under the weight of US President Donald Trump’s trade policies. While the Paris-based body has revised its short-term growth outlook upwards for 2025, it emphasized that the full force of tariffs – currently set at an effective rate of 19.5 percent, the highest since 1933 – is yet to be felt. The warning highlights the delicate balance between near-term resilience and mounting medium-term risks that could reshape global trade, investment, and labour markets over the next two years.
Short-Term Resilience Driven by Front-Loading and Policy Support
In its latest projections published on September 23, the OECD raised its forecast for world growth in 2025 to 3.2 percent, supported by a combination of front-loaded activity, technological investment in the United States, and fiscal stimulus in China. Companies accelerated purchases and supply-chain adjustments ahead of tariff hikes, providing a temporary boost to global trade and industrial output. Meanwhile, US firms invested heavily in artificial intelligence and automation, which bolstered productivity and business confidence, while Beijing’s fiscal support helped stabilize demand in the world’s second-largest economy.
This resilience has surprised many economists, who initially expected sharper disruptions following the introduction of wide-ranging tariffs. The OECD’s assessment suggests that short-term buffers such as stockpiling, government spending, and technological investment have provided temporary insulation. However, these measures mask deeper structural risks that will likely surface in 2026 and beyond.
The organisation projects global growth to slow to 2.9 percent in 2026, with the US economy decelerating from 1.8 percent to 1.5 percent. The drag comes primarily from higher import costs, disrupted supply chains, and rising uncertainty that dampens business investment. Importantly, the OECD’s analysis indicates that the unwinding of front-loaded trade activity will leave economies exposed to the true impact of tariffs, which are expected to bite hardest in the medium term.
Medium-Term Risks: Trade Frictions, Inflation, and Labor Market Stress
The OECD underlined that the 19.5 percent effective tariff rate imposed by Washington marks the steepest protectionist stance since the early 1930s, a period associated with the collapse of global trade flows during the Great Depression. While today’s global economy is more diversified and interconnected, the historical parallel underscores the dangers of sustained trade barriers. Already, early signs of strain are visible. Consumer prices for certain goods have edged higher as companies pass on import costs to households. Spending patterns have shifted, with consumers cutting back on discretionary purchases. Labor markets, once resilient, are beginning to show cracks: job openings are declining, unemployment rates are edging up, and business surveys reflect moderation in confidence and hiring plans.
The OECD emphasized that the unpredictability of US trade policy under Trump complicates its forecasting. Tariffs have not been implemented uniformly, and negotiations with key partners remain fluid, leaving businesses unsure about the rules governing global commerce. This policy uncertainty acts as a hidden tax on investment, discouraging long-term commitments in sectors ranging from manufacturing to logistics.
At the same time, the OECD warned of knock-on effects across other major economies. Export-dependent regions such as the European Union and East Asia face weaker demand from the US market, while emerging markets risk financial volatility if trade tensions escalate. China, while cushioned by fiscal measures, remains vulnerable to reduced access to US consumers and potential retaliatory tariffs.
From a monetary policy perspective, the OECD expects inflation to ease in most major economies as growth slows and labour markets soften. This creates space for central banks, particularly the US Federal Reserve, to gradually lower interest rates. Yet, the organization cautioned that further tariff hikes or a resurgence of inflationary pressures could force policymakers back into a tightening stance, amplifying risks to both markets and households.
Broader Implications: Global Cooperation Under Strain
Beyond the immediate economic projections, the OECD’s report underscores the strategic challenge posed by rising protectionism. Trump’s trade agenda reflects an effort to reconfigure global commerce in favour of domestic producers, but it comes at the cost of fraying international cooperation. The OECD’s chief economist, Alvaro Santos Pereira, stressed the importance of maintaining dialogue: “It is important that countries continue to talk and are able to get agreements to reduce trade barriers because we know that more trade is good for growth.”
The call for cooperation resonates at a time when global institutions face rising scepticism. Multilateral frameworks such as the World Trade Organization (WTO) have struggled to arbitrate disputes effectively, and the proliferation of bilateral trade conflicts has eroded trust in the rules-based order. The OECD’s projections implicitly warn that the erosion of multilateralism may impose long-term costs beyond what current forecasts capture.
In practical terms, sectors most exposed to tariffs—such as consumer electronics, automotive supply chains, and agricultural commodities—are likely to face sustained volatility. Asian economies tightly integrated into US-centered supply chains, including South Korea, Taiwan, and Vietnam, may experience significant pressure as costs rise and trade volumes adjust. Europe, too, faces heightened vulnerability, particularly in industries such as luxury goods and machinery that rely on open access to the US consumer market.
For policymakers, the OECD’s report serves as a reminder that protectionist gains are short-lived, while the costs accumulate over time. The temporary boost from front-loaded trade cannot compensate for the longer-term drag of diminished investment, strained labour markets, and weakening consumer demand.
Conclusion: A Warning with Global Consequences
The OECD’s latest outlook presents a nuanced picture: short-term resilience masking deeper vulnerabilities. While the global economy continues to expand in 2025, thanks in part to anticipatory trade activity and targeted policy support, the momentum is unlikely to last. By 2026, the weight of tariffs and uncertainty threatens to pull global growth below 3 percent, with ripple effects across advanced and emerging markets alike.
The broader lesson is clear. Sustained protectionism not only imposes direct costs through higher prices and weaker demand but also erodes confidence in the stability of global rules. For the OECD, the message to policymakers is straightforward: renewed commitment to dialogue, cooperation, and trade liberalization is essential to safeguarding long-term prosperity. Without it, the global economy risks repeating historical mistakes that once turned protectionism into a catalyst for crisis.
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