OECD warns of tariff drag on growth as Trump vows to press on with levies

PARIS – US President Donald Trump’s tariff hikes will drag down growth in Canada, Mexico and the United States while driving up inflation, the Organisation for Economic Cooperation and Development (OECD) forecast on March 17, just as Mr Trump promised to press ahead with a new wave of levies in early April.

Mr Trump, speaking aboard Air Force One en route to Washington overnight, also repeated that he had no plans to create exemptions for the 25 per cent steel and aluminium tariffs that went into effect last week.

The OECD estimated in an economic outlook update that US households will pay a high direct price from the new import taxes, and the likely economic slowdown will cost the US more than the extra income the tariffs are supposed to generate.

Global growth is on course to slow slightly from 3.2 per cent in 2024 to 3.1 per cent in 2025 and 3 per cent in 2026, the Paris-based policy forum said, cutting its projections from 3.3 per cent for both this year and next in its previous economic outlook, issued in December.

It said US economic growth is seen slowing in 2025 to 2.2 per cent – versus 2.4 per cent in the OECD’s earlier estimate – and would lose more steam in 2026, with growth now estimated at 1.6 per cent, down from 2.1 per cent previously.

The Mexican economy, meanwhile, would be hit hardest by the tariff hikes, contracting 1.3 per cent in 2025 and a further 0.6 per cent in 2026 instead of growing 1.2 per cent and 1.6 per cent as previously expected.

Canada’s growth rate would slow to 0.7 per cent in 2025 and in 2026, well below the 2 per cent previously forecast for both years.

The OECD report is the latest to project that North American growth would be stymied by Mr Trump’s tariffs, which have also torpedoed a range of measures of US household and business sentiment.

On March 14, the University of Michigan reported that US consumer sentiment plunged to a nearly 2½-year low in March and inflation expectations soared amid worries over tariffs.

And on March 17, a gauge of factory activity in New York State from the Federal Reserve Bank of New York plummeted by the most in nearly two years and input costs surged, and a separate survey of home builders showed that sentiment was the lowest in seven months.

Since returning to the White House in January, Mr Trump has unleashed a barrage of tariff announcements. He has imposed 20 per cent levies on all imports from China and has threatened, but delayed until April, 25 per cent duties on most imports from Mexico and Canada as part of a demand the three countries help staunch the flow of fentanyl into the US.

He raised tariffs on imports of steel and aluminium to a flat 25 per cent, effective last week, without exemptions or exceptions, in a move that was designed to help US industry while contributing to an escalating trade war.

And more are coming. He has promised tariffs on cars beginning on April 2, alongside a more sweeping agenda of reciprocal tariffs, under which the US would match all levies on US goods imposed by other countries.

“In certain cases, both,” Mr Trump said when asked aboard Air Force One if he would be imposing sectoral and reciprocal tariffs on April 2.

“They charge us, and we charge them. Then, in addition to that, on autos, on steel, on aluminum, we’re going to have some additional,” he said.

Global stock markets have been pummelled by the developments, with the US benchmark S&P 500 index dropping by more than 10 per cent from its mid-February record, although it retraced some of that decline in the last two sessions. The index was about 0.5 per cent higher on March 17.

Canadian officials, in particular, have complained that it is increasingly difficult to negotiate with the Trump administration over the tariff threats.

“We’re looking at significant tariffs inconsistent with the USMCA (US-Mexico-Canada Agreement on trade) being imposed willy-nilly, without regard for the commitments that we have negotiated with the United States,” Mr Colin Bird, Consul-General of Canada in Detroit, said at an event in the Motor City on March 17.

“That is a problem for the United States, not only in its economic relationship with Canada, that’s a problem for its credibility in negotiating with the world.” REUTERS