S Poddar
The Organisation for Economic Co-operation and Development (OECD) has downgraded the global economic growth forecast amid the ongoing fallouts of US President Donald Trump’s protectionist tariff policies. In its latest report, the OECD estimates that major economies, such as the UK, will see slower GDP growth rates. The organization’s warning is that consumers will bear “much of the burden” of these higher tariffs, which are predicted to have a large impact on living standards.
The interim economic outlook by the OECD predicted a decline in the economic growth of the UK. The nation’s GDP would now rise only 1.4% in the current year, a fall from the original 1.7%. Growth for the economy of the UK is predicted for 2026 at 1.2%, which is lower than the initial prediction of 1.3% prior to Trump becoming President. This is another setback for UK Chancellor Rachel Reeves, particularly after a surprise contraction of GDP earlier this year. The UK government has repeatedly stressed its focus on economic expansion, but the impact of global trade disruption is proving troublesome.
As a reaction to the findings of the OECD, Chancellor Reeves raised the fact that even with these downward revisions, the UK is still forecast to be “Europe’s fastest growing G7 economy” over the next few years, after the US. “This report illustrates that the world is changing, and more global headwinds like trade uncertainty are being experienced across the piece,” she said, recognizing the challenging economic environment.
Global GDP expansion is also poised to decelerate, according to the OECD. Following an estimated 3.2% expansion in 2024, the world economy will expand at only 3.1% in 2025 and 3% in 2026. These rates capture the continuous disruption from heightened trade barriers, especially the tariffs levied by the US, and the associated policy uncertainty.
The US tariffs’ impact on the global economy is already being felt. For example, US growth estimates have been lowered from the predicted 2.4% in 2025 to a mere 2.2%, further lowered to 1.6% in 2026. This represents a significant reduction from the previous forecasts of 2.4% this year and 3.1% next year. Despite all this, the Eurozone seems to have been somewhat less impacted by the tariff policy than initially anticipated. The OECD observes that although European economies will directly feel less impact from the tariffs, the constant geopolitical tensions and policy risks will still constrain growth.
One of the most significant recent developments has been the introduction of the 25% tariff on steel and aluminium imports to the US, which came into force this month. These tariffs are one facet of a wider strategy pursued by the Trump administration aimed at decreasing trade imbalances as well as defending American businesses. Tariffs on imports from China, including major industrial products, have also been put in place. Tariffs on Canada and Mexico have in the meantime been temporarily waived until 2 April, though the complete economic effect of these actions is still to be fully felt.
The EU is retaliating by preparing to apply its own tariffs on American goods, further tightening global trade. In retaliation against the European Union’s proposed tariffs, President Trump has threatened to apply a 200% tariff on European alcoholic drinks, such as wine and champagne. The tit-for-tat tariff game has added uncertainty in global markets, making it more difficult for companies to prepare for the future.
It is the consumers who will shoulder much of the burden of the increases in tariffs, as the OECD report makes obvious. “Consumers bear much of the cost of rising tariffs,” the report says, noting the pressure that these trade barriers will put on family budgets. The higher prices that imported goods will carry, and the tendancy to pass these costs along to the consumer, will bring living standards lower for many worldwide.
The long-term economic impact of the US tariffs is unclear, but the immediate repercussions are already visible. Most industries that depend on international supply chains are finding increased costs of production, which are then passed on to consumers in the form of increased prices. In the UK, where the manufacturing industry is much dependent upon steel imports, these tariffs are likely to have an especially harsh impact. The hike in steel prices, along with the wider upset to global trade, is set to make it increasingly tough for UK manufacturers to compete globally.
In addition, the uncertainty in trade policies is deterring firms from undertaking long-term investments. As the US and other leading economies turn protectionist, firms are reluctant to undertake projects that involve cross-border trade, particularly when tariffs and other impediments may be imposed or raised at any moment. This uncertainty regarding the stability of global trade agreements is helping to fuel the decline in economic growth, both within the UK and globally.
While there is a bleak prognosis, there are some who think that there is a silver lining in the future. If other economies and the US can somehow manage to end their trade wars and cut tariffs, it could get world growth going again. That said, in the meantime, the world economy is likely to come under strong headwinds, with the OECD calling on policymakers to act to counteract the impact of these trade dislocations and shore up hard-pressed consumers.
The next several years will be pivotal for the UK as well as the global economy as they recover from this uncertain economic situation. Although the future ahead may seem dark, growth and recovery are still possible as long as governments make the right decisions to tackle the problems brought by the current tariff wars. In the end, it will be the consumers that will suffer the most pain, but policymakers and businesses must also collaborate to provide a means to recover from such global trade tensions.
