As the reality of US President Donald Trump’s tariffs policies starts to take effect, the Organization for Economic Co-operation and Development (OECD) has downgraded its estimate for global economic growth. The UK and other large economies will experience reduced GDP growth rates, the latest OECD study reveals. The group warns that “a lot of the burden” of the increased tariffs will be borne by consumers, which is set to take a big toll on living standards.
The OECD’s interim economic outlook has predicted a slowdown in the UK’s economic growth. The nation’s GDP is now predicted to increase by only 1.4% this year, reduced from the previous prediction of 1.7%. In 2026, the UK economy will increase by 1.2%, less than the previous forecast of 1.3% prior to Trump becoming President. It is a further blow to UK Chancellor Rachel Reeves, particularly after the unexpected downturn in GDP this year. The UK government has constantly reiterated its intentions for economic growth, but global trade disruptions are having the difficult impact of reducing economic expectations.
In reaction to the OECD findings, Chancellor Reeves noted that although these downward adjustments have been made, the UK is still likely to be “Europe’s fastest growing G7 economy” over the next several years, with only the US ahead of it. “This report indicates that the world is changing, and more global headwinds in the form of trade uncertainty are being experienced by everyone,” she said, citing the challenging economic environment.
Global GDP growth will also decelerate, the OECD warns. Following a forecasted 3.2% growth in 2024, the world economy will only expand by 3.1% in 2025 and 3% in 2026. These are the effects of the persistent disruption from higher trade barriers, especially the US tariffs, and the policy uncertainty that accompanies them.
The effects of the US tariffs on the world economy are already being felt. For example, US growth forecasts have been revised downwards from a projected 2.4% in 2025 to only 2.2%, and a further drop to 1.6% in 2026. This is a precipitous drop from previous forecasts of 2.4% growth for this year and 3.1% next year. In spite of these disappointments, the Eurozone has seem to have been less impacted by the tariff actions than initially anticipated. The OECD observes that although European economies will be less directly affected by the tariffs, the persistent geopolitical tensions and policy uncertainties will continue to restrain growth.
One of the most significant events in recent weeks has been the imposition of the 25% tariff on steel and aluminium imports into the US, which took effect last month. These tariffs form part of a larger plan from the Trump administration to curtail trade imbalances and safeguard American businesses. Tariffs on Chinese imports, including major industrial products, have also been imposed. Tariffs on Canada and Mexico, however, have been suspended for a temporary period until 2 April, but the complete economic effect of these actions is still to be fully felt.
The EU is in turn ready to impose tariffs of its own on US products, further worsening trade in the world. In a retaliatory move against the European Union’s proposed tariffs, President Trump has threatened to impose a 200% tariff on alcoholic drinks from Europe, including wine and champagne. The retaliatory tariff tit-for-tat has heightened risk across world markets, which is diminishing the ability of companies to make long-term plans.
It is consumers, the OECD report clearly shows, who will take much of the hit of these tariff hikes. “Consumers bear much of the cost of higher tariffs,” the report says, noting the squeeze that these trade barriers will put on family budgets. The added expense of imported products, passed along to consumers in many cases, will more than likely translate into a drastic cut in living standards for millions of individuals across the globe.
The long-term economic impact of the US tariffs is unclear, but the short-term effects are already being seen. Most industries that depend on international supply chains are seeing 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 so dependent on steel imports, these tariffs are likely to have a particularly harsh effect. The rise in steel prices, as well as the wider disruption to global trade, is set to make it increasingly hard for UK manufacturers to be competitive on the international market.
Also, uncertainty over trade policy is deterring businesses from investing for the longer term. As major economies such as the US are embracing protectionist policy, firms are not willing to undertake projects involving cross-border trade when tariffs and other forms of protection might be imposed or escalated at any moment. This unwillingness to have faith in the stability of global trade arrangements is supporting the deceleration in economic growth, both in the UK and globally.
While the dismal prognosis, some analysts think, there could be a silver lining in the future. If the US and other economies are able to resolve their trade tensions and reduce tariffs, it could serve to rekindle global growth. But for the time being, the world economy is likely to encounter strong headwinds, with the OECD calling on policymakers to act to counter the impact of these trade disruptions and help struggling consumers.
As the UK and the world economy negotiate this volatile economic climate, the coming years will be decisive. Even though the immediate future might look bleak, there are still opportunities for growth and rebound, provided governments make the right moves to address the issues brought up by the present tariff wars. While consumers will ultimately bear the brunt of it, businesses and lawmakers need to work together to ensure a recovery amidst these global trade disputes.