The latest OECD report reveals bleak economic outlooks for Canada and Mexico as US trade tariffs trigger a predicted recession in Mexico and sluggish growth in Canada, while also affecting the US economy.
Trade Tensions Projected to Constrain Economic Expansion in North America
Trade Tensions Projected to Constrain Economic Expansion in North America
OECD forecasts significant downturns in economic growth for Canada and Mexico due to heightened trade tariffs imposed by the US.
In a recent update, the OECD has raised alarms about the ripple effects of escalating trade tariffs under US President Donald Trump, predicting severe consequences for the economies of Canada and Mexico. The organization warns that these tariffs will not only depress growth in North America but will also contribute to rising global inflation.
The expected impact on Canada is particularly stark, with the OECD slashing its growth forecast for this year and next to a mere 0.7%. Mexico faces even graver challenges, forecasted to enter a recession with an anticipated contraction of 1.3% this year and a further decline of 0.6% in 2025. This marks a drastic departure from earlier projections that had anticipated growth for both nations.
The tariffs include a 25% levy on steel and aluminum imports from Canada and Mexico, along with additional 25% tariffs on other imports, some of which were previously exempted. Notably, a 20% tariff has also been placed on goods from China. In retaliation, both Canada and the European Union have initiated their own tariffs, compounding the effects of these trade restrictions.
The OECD's analysis indicates that increased trade barriers, alongside a backdrop of geopolitical instability, are curtailing investment and household expenditures in these countries. Consequently, while US growth is expected to slow to 2.2% this year—a downgrade from earlier estimates—the outlook for China has improved slightly to 4.8%.
Moreover, the OECD warned that the ramifications of this trade standoff could prolong periods of high inflation, potentially necessitating sustained higher interest rates. The organization further cautioned about the significant risks posed by continuing fragmentation in global trade, which could hinder worldwide economic growth, currently projected to decline from 3.2% in 2024 to 3.1% in 2025.
Meanwhile, companies like Tesla have voiced concerns regarding the adverse effects on US exporters, claiming they face disproportionate impacts if countries retaliate against American tariffs. Global economic forecasts are also weakening, with the OECD revising its growth projections downward for other countries, including the UK, which now faces reduced growth rates estimated at 1.4% in 2025.
The situation remains fluid, but renewed trade tensions appear set to have long-lasting impacts, challenging economic resilience across the North American landscape.
