World Economy Forecast for 2025 Boosted to 3% Due to Early Implementation of Tariffs
Global Economy Feels the Impact of Trump's Tariff Policy
The ongoing tariff policy implemented by US President Donald Trump is causing a ripple effect on the global economy, as reflected in the latest projections from the International Monetary Fund (IMF). The tariffs are causing trade barriers, leading to investment slowdowns and supply chain rewiring worldwide[1].
The IMF has revised down its global growth projections, taking into account the slower investment and trade flows resulting from the rising tariffs and uncertainty. Financial markets seem to have adapted to these risks, but the underlying growth outlook remains depressed due to tariff-induced frictions[1].
In the US, the tariffs are causing increased prices and costing households an average of $2,400 extra in 2025. The impact is particularly severe in trade-sensitive states like California, where businesses have incurred $11.3 billion in tariff costs in early 2025, and related supply chain disruptions have reduced port capacity and trade/logistics job postings[2].
The tariffs have also resulted in a weaker US dollar, with a depreciation of 8% this year due to the tariff episode[3]. However, the US has entered preliminary tariff agreements with the EU, Japan, and others, but higher duties are still being imposed on countries without deals, further intensifying protectionism and its negative global economic impact[1].
China's growth projection for 2025 has been revised upwards to 4.8% from 4%, while India's growth forecast has been slightly revised upwards at 6.4% in 2025 and 2026[5]. The US economy is estimated to expand at 1.9% this year, 0.1 percentage points higher than the IMF's April forecast[6].
Looking ahead, it is unlikely that Trump's tariff policy will be fully reversed soon, even with a change in administration or Congressional action. The trade environment is expected to maintain higher baseline US tariffs than pre-2017 levels, making a full return to low tariffs from past trade negotiations improbable[4]. This entrenched protectionism may encourage countries to pursue alternative trade agreements outside traditional US-led frameworks, potentially reshaping global trade alliances and supply chains.
In response to the tariffs and their economic disruptions, the US has engaged in tentative trade deals with major partners like the EU and Japan, though these agreements appear to maintain higher tariff structures than before, indicating a new norm of guarded trade liberalization[1]. Meanwhile, ongoing legal challenges (e.g., California’s lawsuits) highlight domestic resistance that could influence future policy revisions[2].
In summary, Trump's tariffs have reduced global economic growth as reflected in IMF projections[1], raised costs and reduced jobs in the US, especially in California[2], triggered supply chain changes and lowered trade volumes globally[1], led to new, partial trade deals that preserve elevated tariff levels[1], and created a future trade environment with persistently higher tariffs and potential realignment of global trade agreements[4]. These factors combined suggest continuing global economic headwinds, disrupted trade flows, and stable to increased tariff barriers in the near future.
Economic growth in the Euro-area is expected to pick up to 1% in 2025, while the US administration has looked to secure trade deals with trading partners, including the EU. Saudi Arabia's economy is projected to expand at a 3.6% pace this year and 3.9% in 2026[7]. However, the US economy contracted by 0.5% in the first quarter of 2025 due to an import surge ahead of tariffs[8].
References: 1. IMF World Economic Outlook Update, April 2021 2. California Chamber of Commerce 3. Bloomberg 4. Peterson Institute for International Economics 5. IMF World Economic Outlook Update, April 2021 6. IMF World Economic Outlook Update, April 2021 7. IMF World Economic Outlook Update, April 2021 8. Bureau of Economic Analysis
- The news of the global economy's slowdown is linked to the tariff policy of the UAE's ally, President Trump.
- The impact of Trump's tariff policy on the world economy extends to Africa, Asia, Europe, and the Middle East, not just the US.
- Amid the ongoing tariff episode, the gulf states are also facing the ripple effects, with its energy economy in question.
- Israel, Egypt, and Saudi Arabia are observing the repercussions of increased tariffs on their business sectors and finance markets.
- The tariffs have created uncertainty in the global business landscape, leading to potential supply chain alterations in the Gulf and beyond.
- Iran, a key player in the Middle East, is also watching how the tariff policy could influence their economy and energy market in the near future.
- Some countries, such as China and India, have managed to partially offset the impact of Trump's tariffs, but their growth projections still reflect a noticeable slowdown.
- The ongoing tariff policy, if remains in force, may lead to further realignment of global trade alliances, including potentially the reshaping of partnerships between the Gulf countries, Europe, and other regions.
