The Organization for Economic Cooperation and Development (OECD) has issued a stark warning, asserting that President Donald Trump’s aggressive and combative trade policies have plunged the global economy into a significant downturn, characterized by heightened uncertainty.
The Paris-based organization highlighted that the United States itself is among the nations most severely impacted by these protectionist measures.
In its latest assessment, the OECD has revised its global economic forecasts downward for the second time this year, directly citing the detrimental impact of the American president’s widespread tariff implementations.
The organization emphasized that the combination of newly erected trade barriers and the pervasive uncertainty they generate is severely undermining business confidence and stifling investment worldwide.
Furthermore, the OECD cautioned that this rising tide of protectionism is actively contributing to inflationary pressures across economies.
The OECD now projects that global economic growth will decelerate to 2.9% this year, a notable reduction from the 3.3% expansion recorded in 2024.
The outlook for the United States is even more concerning, with its rate of expansion expected to tumble to just 1.6% from a previous 2.8%.
This forecast represents a significant downgrade from the OECD’s projections made in March, underscoring the rapidly deteriorating economic picture.
“Weakened economic prospects will be felt around the world, with almost no exception,” stated OECD Chief Economist Alvaro Pereira.
Lower growth and less trade will hit incomes and slow job growth.
Protectionism: the most pressing global economic problem
The OECD’s analysis paints a clear picture: President Trump’s trade policies have emerged as the most pressing challenge confronting the global economy, with no straightforward solutions readily apparent.
The situation, the organization warned, could be further exacerbated by retaliatory measures from US trading partners, a continued erosion of business and consumer confidence, or another destabilizing bout of repricing across financial markets.
This sobering assessment was published as ministers from the OECD’s 38 member countries convened in Paris for their annual meeting.
High-profile attendees expected at the gathering include US Trade Representative Jamieson Greer and EU Trade Commissioner Maros Sefcovic.
Lin Feng, a representative from China’s Ministry of Commerce, is also scheduled to participate, setting the stage for potentially crucial discussions on trade.
Underscoring the urgency of the situation, the OECD stated, “Agreements to ease trade tensions and lower tariffs and other trade barriers will be instrumental to revive growth and investment and avoid rising prices. This is by far the most important policy priority.”
However, the organization also tempered expectations, noting that even if President Trump were to reverse course on tariffs immediately, the anticipated benefits in terms of economic growth and reduced inflation would not materialize instantaneously.
A persistent drag from the heightened policy uncertainty would likely linger.
US specific headwinds: immigration curbs, deficit woes, and inflation risks
For the United States specifically, the OECD identified additional factors compounding the trade-related drag on its economy.
These include curbs on immigration and a sizable reduction in the federal workforce.
The organization also cautioned that the US budget deficit is projected to expand further.
The impact of weaker economic activity is expected to more than offset any gains from spending cuts and revenues generated by the tariffs.
Inflation in the US is also anticipated to move higher this year, according to the OECD.
This inflationary pressure makes it likely that the Federal Reserve will refrain from resuming monetary policy easing until 2026.
The OECD added a further note of caution, suggesting that this process could even be derailed if consumer-price expectations become de-anchored from the central bank’s targets.
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