The trade war initiated by President Trump will have a negative impact on global economic growth, which will stand at 2.8 percent, down 0.5 percent from last year. The fallout will be even more significant on the U.S. economy whose growth estimates, for 2025, are 1.8 percent, down by as much as 0.9 percentage points from last January’s forecast. The negative trend will continue in 2026, with growth estimated at around 1.7 percent. This is according to the report, World Economic Outlook, released yesterday morning by the International Monetary Fund (IMF).
President Donald Trump’s April 2 introduction of “reciprocal” tariffs not only shook the stock market-the S&P 500 index has fallen 9 percent since the duties were introduced-but also triggered countermeasures by other trading partners, generating a serious negative shock to growth, IMF chief economist Pierre-Olivier Gourinchas said at a press conference in Washington.
There is no question, according to the IMF, that the global economic system, which has worked for the past 80 years, is undergoing a readjustment. The U.S. tariff rate has now surpassed Great Depression levels and, counter-reactions from major trading partners, have pushed up the global rate. All this has engendered a climate of political uncertainty, which is a key determinant of the economic outlook.
Although the Republican administration has said that, over time, higher tariffs will prove beneficial, as they will boost the recovery of the manufacturing sector and increase U.S. employment. In contrast, the IMF believes that the negative supply shock, caused by the tariffs, will reduce competition and innovation in the medium term, generating a further slowdown in global growth.
Although the IMF does not predict a recession in the United States, as the labor market is, to date, still very robust, the report shows a 40 percent probability of recession, up from 25 percent in October 2024.
The International Monetary Fund forecast also makes it clear that tariffs could complicate efforts to contain inflation. The fund has, in fact, raised its forecast from 2 percent this year to 3 percent.
The effect of tariffs on exchange rates is complex. Indeed, in previous periods of high market volatility, they caused the U.S. dollar to strengthen and caused inflationary pressures in other countries to rise. However, the dollar has reversed this trend following the recent market devaluation. “The effect of tariffs on exchange rates is not simple,” Gourinchas explained. “In the medium term, the dollar could depreciate in real terms if tariffs result in lower productivity in the U.S. tradable goods sector, relative to its trading partners.”
The article International Monetary Fund cuts growth estimates and flunks Trump’s trade war comes from TheNewyorker.
