Trade Wars: A Looming Economic Storm for Canada, Mexico, and Beyond

The escalating trade tensions initiated by US President Donald Trump’s tariffs are forecasted to have a significant negative impact on economic growth in Canada and Mexico, according to a new report by the OECD. The organization has drastically revised its growth predictions for these countries, reducing Canada’s expected growth for this year and next from 2% to a mere 0.7%. Mexico faces an even graver outlook, with forecasts now predicting a contraction of 1.3% this year and an additional 0.6% decline next year, shifting from previous growth expectations of 1.2% and 1.6% respectively.

The trade conflict stems from the imposition of 25% tariffs on steel and aluminum imports, as well as other tariffs on Canadian and Mexican goods. In retaliation, both Canada and the EU have introduced their own counter-tariffs. The OECD emphasizes that these increased trade barriers, along with heightened geopolitical uncertainty, are dampening both investment and consumer spending across these economies.

Furthermore, the US economy is not exempt from these repercussions, with its growth forecast downgraded to 2.2% for this year and 1.6% in 2026, down from earlier estimates of 2.4% and 2.1%. Despite these concerns, the OECD has slightly increased its growth forecast for China to 4.8%, though it also warns that ongoing trade hostilities will likely lead to sustained inflation and elevated interest rates.

Globally, the OECD predicts a slowdown in economic growth from 3.2% in 2024 to 3.1% in 2025 due to the ongoing trade war. Inflation rates are expected to peak at 3.8% among the largest economies, slightly exceeding previous forecasts. The global ramifications of tariffs extend beyond direct economic metrics; companies like Tesla have raised alarms about the disproportionate impacts exporters face amid retaliatory actions from other nations.

Additionally, the forecast for the UK economy has been downgraded, reflecting similar concerns as those for Canada and Mexico, suggesting a broader global trend of economic uncertainty due to trade tensions.