OECD report warns Trump tariffs are driving up inflation

The Organization for Economic Cooperation and Development 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% in 2024 to 3.1% in 2025 and 3.0% in 2026, the Paris-based policy forum said, cutting its projections from 3.3% for both this year and next in its previous economic outlook, issued in December.

It said US economic growth was seen slowing this year to 2.2% - versus 2.4% in the OECD's earlier estimate - and would lose more steam next year, with growth now estimated at 1.6%, down from 2.1% previously.

The Mexican economy, meanwhile, would be hit hardest by the tariff hikes, contracting 1.3% this year and a further 0.6% next year instead of growing 1.2% and 1.6% as previously expected. Canada's growth rate would slow to 0.7% this year and next, well below the 2% forecast for both years.

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

On Friday the University of Michigan reported that US consumer sentiment plunged to a nearly two and a half-year low in March and inflation expectations soared amid worries over tariffs. A separate survey of home builders showed sentiment was the lowest in seven months.

Mr Trump has imposed 20% levies on all imports from China, and has threatened, but delayed until April, 25% duties on most imports from Mexico and Canada.

He raised tariffs on imports of steel and aluminum to a flat 25%, 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 autos beginning 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," 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.

On Monday, French President Emmanuel Macron said trade that adhered to international rules on commerce was a more effective tool for prosperity than tariffs.

"I think we both believe that fair trade that respects international rules is good for everyone's prosperity, and is certainly more effective than tariffs," Macron told reporters alongside Canada's prime minister Mark Carney. who was visiting Paris and London.

Bloomberg