The damaging first act of the global trade war

President Trump initiated a global trade war by announcing across-the-board tariffs on Canada, Mexico and China. This development came sooner than we anticipated in our baseline forecast and will lead us to downgrade our 2025 global forecast.

What you will learn:

• The latest set of tariffs will lead to weaker GDP growth, higher unemployment, higher interest rates and higher inflation this year in Canada, Mexico and the US than in our January baseline forecast. It will also cause us to raise our trade-weighted US dollar forecast.
• To quantify the potential changes to the February baseline forecast, we leaned on our tariff scenario that included 10% tariffs on China and 25% blanket tariffs on Canada and Mexico. Because of the lower 10% tariff for Canadian oil and energy and a less proportional Canadian retaliation, the economic implications won’t be as severe as our prior scenario.
• We suspect that the announced tariffs won’t fully remain in place for an extended period. Exemptions will be made, including for building materials and transportation equipment. Still, the tariffs will shave 0.7ppts off US GDP growth this year, and while a recession will be avoided in the US, Canada and Mexico will be hit even harder.
• The dust hasn’t settled on these announcements – they could still be watered down – creating considerable uncertainty in the forecast. Therefore, it’s possible that additional adjustments to our assumptions around the tariffs will be made this week, which would be incorporated into the February baseline, released on February 11.

For more insights on the Economics of Trump 2.0​, click here.