Protectionist Policies Drag U.S. and Global Outlook into Uncertain Territory
PARIS, JUNE 6, 2025 — The Organisation for Economic Co-operation and Development (OECD) has sharply downgraded its global growth outlook for 2025 and 2026, citing a resurgence of protectionist trade measures—particularly the United States’ aggressive tariff regime under President Trump—as the primary headwind facing the world economy.
The Paris-based institution now projects global GDP growth of just 2.9% in both 2025 and 2026, down from earlier forecasts of 3.2% and 3.3%, respectively. The U.S. economy, previously expected to grow at 2.1% next year, has had its forecast reduced to 1.6% for 2025 and 1.5% for 2026, amid slowing investment and weakening export demand.
Tariffs at the Heart of the Downturn
The OECD was blunt in its assessment. “The reintroduction and expansion of unilateral tariffs by major economies—most notably the U.S.—has disrupted trade flows, escalated costs for manufacturers, and dampened business confidence globally,” the report said.
President Trump’s sweeping tariff packages, aimed primarily at Chinese goods but extended to European steel, Canadian auto parts, and Mexican electronics, have triggered retaliatory measures and strained long-standing trade alliances. While aimed at bolstering domestic manufacturing, the policies appear to be hurting global supply chains and triggering cost inflation in critical sectors such as automotive, semiconductors, and consumer electronics.
Investment Stalls and Supply Chains Struggle
The OECD’s data show a notable decline in cross-border capital flows and global foreign direct investment (FDI), which fell 7% in Q1 2025 year-on-year. Large U.S.-based multinationals have paused major projects, particularly in Asia, amid fears of further policy escalation and uncertainty about contract stability.
In addition, multinational supply chains are undergoing hurried—and costly—realignments. The semiconductor industry, already rattled by export controls and China’s restrictions on rare earths, now faces new tariff layers that threaten production continuity.
Consumers and Inflation: A Double Burden
Higher import costs are also starting to hit consumers. The OECD warned of “second-round effects” as companies pass on increased input costs. While inflation in major economies has cooled from pandemic-era peaks, the organization cautions against complacency. “Trade-based inflation could become embedded if tariffs remain or intensify,” the report notes.
In the U.S., consumer price inflation is projected to hover at 3.4% in 2025, well above the Federal Reserve’s target of 2%. Central banks are expected to tread carefully, with little room to stimulate demand without stoking inflationary pressures.
Policy Recommendations and Caution Ahead
The OECD urged G20 economies to recommit to multilateral trade rules and avoid further unilateral action. It also called on central banks to coordinate more closely, warning that policy divergence could destabilize currency markets.
For now, investors and policymakers are left with a sobering assessment: geopolitical frictions are not just background noise—they are defining the economic landscape.