Tariffs imposed on Canada and Mexico include 25% on most imports, but certain products such as automobiles and imports subject to the USMCA trade agreement have been exempted until April 2. A tariff of 50% on the importation of steel and aluminum has targeted Canada, with Mexico also being subject to such tariffs. China has been hit by a 20% import tariff, beginning with a 10% rate, which further increased by another 10% in March.
The tariff hikes have had severe economic effects. The Organisation for Economic Co-operation and Development (OECD) reduced its growth forecasts of Canada and Mexico as it anticipates a huge fall in economic performance. Canada’s growth is now projected to be only 0.7% this year and next, down from earlier estimates of 2%. Mexico will be in recession, with its economy projected to contract 1.3% this year and a further 0.6% next year.
In the United States, growth forecasts have also been adjusted downward to 2.2% for this year and 1.6% by 2025, compared to earlier projections. The OECD warns that these tariffs will not only slow economic growth but also drive up inflation, compelling central banks to maintain higher interest rates for longer.
World trade is recording steady growth amidst these headwinds, and projections are a 2.5% year-on-year trade in goods growth in 2025. Nevertheless, the future remains uncertain with ongoing tensions on trade and threats of further tariffs. The significant reliance on raw materials and crucial intermediate goods and new alliances and potential trade arrangements suggest trade action persisting but the climate dotted with uncertainty.
The impact of Trump’s trade tariff policy does not just reach North America. The world’s second-largest economy, China, will likely see its growth slow down as trade tensions rise. Increased government stimulus is, however, viewed to counteract some of the impact, with growth projected to be 4.8% in 2025.
The euro zone, having smaller direct exposure to the U.S.-driven trade war, is forecasted to post slight growth, however, downward revised from previous expectations. The repeated trade skirmishes have engendered massive uncertainty, which had impacted business expenditure and has resulted in central banks holding higher interest rates.
Overall, Trump’s tariff policies have introduced unprecedented volatility into global trade, with far-reaching implications for global relations, inflation, and economic growth. In the ongoing escalation of trade tensions, the global economy has a dismal future, with the potential for heightened interferences if these policies persist.
