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World Bank Warns U.S. Tariffs Could Impact Global Growth Outlook

by Mich M.
01/16/2025
in Tariffs & Duties

WASHINGTON – The World Bank has issued a warning that U.S. tariffs of 10% on imports could reduce global economic growth in 2025, already forecasted at 2.7%, by 0.3 percentage points if U.S. trading partners retaliate with tariffs of their own.

President-elect Donald Trump, who is set to take office on Monday, has proposed a 10% tariff on global imports, a 25% duty on imports from Canada and Mexico until stricter measures are implemented to control drug trafficking and migration, and a 60% tariff on Chinese goods. Several countries, including Canada, have already indicated plans to retaliate.

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According to the World Bank, simulations using a global macroeconomic model indicate that a 10-percentage point increase in U.S. tariffs on all trading partners in 2025 would reduce global growth by 0.2 percentage points. Proportional retaliatory measures by other nations could further exacerbate the impact on global growth.

The estimates align with external studies, which suggest that a 10-point increase in U.S. tariffs could lead to a 0.4% reduction in U.S. GDP, while retaliation from trading partners could increase the negative impact to 0.9%. On the other hand, U.S. growth could see an increase of 0.4 percentage points in 2026 if U.S. tax cuts are extended, with minimal effects on global growth.

The Bank for International Settlements has also expressed concerns, warning of increased trade tensions and fragmentation, and highlighting the risk of a broad-based trade war involving Washington and other nations.

In its latest Global Economic Prospects report, the World Bank projects flat global economic growth of 2.7% for 2025 and 2026, mirroring the growth rate of 2024. The report also points to the weakest long-term growth outlook for developing economies since 2000.

Foreign direct investment into developing economies has dropped to around half the level seen in the early 2000s, while global trade restrictions have risen to five times the average seen between 2010 and 2019. Growth in developing countries is expected to reach 4% in 2025 and 2026, significantly lower than pre-pandemic estimates, due to high debt levels, weak investment, slow productivity growth, and rising climate-related costs.

The report also highlights that overall output in emerging markets and developing economies is expected to remain more than 5% below pre-pandemic trends by 2026 due to the lingering effects of the pandemic and subsequent economic shocks.

Growth in developing countries has steadily declined, from nearly 6% in the 2000s to 5.1% in the 2010s, and is now averaging about 3.5% in the 2020s. The gap between rich and poor countries is widening, with per capita growth in developing nations (excluding China and India) falling half a percentage point behind that of wealthier economies since 2014.

The report also cautions that developing economies could face significant challenges over the next two years, including high global policy uncertainty, which could undermine investor confidence and limit financing flows. Rising trade tensions, persistent inflation, and delayed interest rate cuts could further reduce global growth.

The World Bank flagged additional downside risks for the global economy, citing an increase in trade-distorting measures, primarily by advanced economies, and uncertainty surrounding future policies, which could dampen investment and economic growth.

Global trade in goods and services, which expanded by 2.7% in 2024, is projected to average around 3.1% in 2025 and 2026, but it is expected to remain below pre-pandemic levels.

Stay informed with supply chain news on The Supply Chain Report. Learn more about international trade at ADAMftd.com.

#Tariffs #GlobalEconomy #TradeTensions #WorldBankReport #USImports

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