US Economic Growth Dips Due to Higher Tariffs: OECD

The U.S. economic outlook has dimmed as the Organisation for Economic Co-operation and Development (OECD) sharply cut its growth forecast. Higher tariffs and trade tensions are expected to slow down economic expansion in the United States. This revision reflects concerns over rising trade barriers and their impact on economic stability.

The OECD's report highlights the potential consequences of current trade policies on both domestic and global economic growth.

Top 5 Key Insights:

GDP Growth Slowdown: The OECD projects U. S. GDP growth to fall to 1.6% in 2025 and 1.5% in 2026, a significant drop from the 2.8% recorded in 2024.

This decline indicates a marked deceleration in economic activity, influenced by trade policies and other factors. The revised figures are notably lower than the OECD's March projections of 2.2% for 2025 and 1.6% for 2026.

Impact of Tariffs: Higher tariffs on imports are a primary factor behind the reduced growth forecast, with the effective tariff rate on Chinese imports rising by about 30%. The increased costs associated with tariffs are expected to pass through to consumers, leading to higher prices and reduced purchasing power.

This situation marks the highest tariff rate on U. S. imports since World War II.

Global Economic Weakening: The OECD forecasts a global economic slowdown, with growth declining from 3.3% in 2024 to 2.9% in both 2025 and 2026. This broader weakening reflects increasing trade barriers, tighter financial conditions, and weakened business and consumer confidence. The report suggests that weakened economic prospects will be felt worldwide.

Inflationary Pressures: Annual headline inflation in the U. S. is expected to rise to 3.9% by the end of 2025, driven by higher trade costs. The OECD anticipates that inflation will ease throughout 2026 due to moderate GDP growth and higher unemployment. These projections align with forecasts from Federal Reserve officials, who also foresee potential inflationary impacts from tariffs.

Policy Uncertainty: High economic policy uncertainty, a slowdown in net immigration, and a reduction in the federal workforce are contributing factors to the growth slowdown. These elements add to the challenging economic environment, making it more difficult for businesses to plan and invest. The combination of these factors creates an environment of instability and unpredictability.

Expert Insight:

OECD Report: "This reflects the substantial increase in the effective tariff rate on imports and retaliation from some trading partners, high economic policy uncertainty, a significant slowdown in net immigration and a sizeable reduction in the federal workforce."

Federal Reserve Governor Christopher Waller: Waller anticipates that the effective tariff rate will reach around 15% by year-end, likely resulting in an inflation rate between 3% and 4%, depending on how much of the tariff impact businesses absorb.

Wrap-up:

The OECD's revised economic forecast paints a concerning picture for U.

S. economic growth, primarily due to the impact of higher tariffs.

The anticipated slowdown highlights the interconnectedness of trade policies and economic performance. Navigating these challenges will require careful consideration of policy impacts and a focus on fostering sustainable and inclusive economic progress.

Author Bio:

Rohan Desai has dedicated 10 years to analyzing business trends, technological innovations, and international trade dynamics. His expertise spans from startup ecosystems to global economic policy.

Citations: US economic growth forecast cut sharply due to higher tariffs