The World Bank sounded the alarm with a warning that a potential 10% hike in U.S. tariffs across the board could further stifle global economic growth, which is currently projected at a mere 2.7% for 2025.
As U.S. President-elect Donald Trump takes office, his aggressive trade policy proposals loom large. These include a 10% tariff on global imports, an onerous 25% duty on goods from Canada and Mexico tied to immigration and drug trafficking issues, and a hefty 60% tariff on Chinese imports. In response, some nations, such as Canada, have already pledged to retaliate against these measures.
Using a global macroeconomic model, the World Bank simulated the impacts of a 10-percentage point increase in U.S. tariffs. The findings suggest a likely reduction in global growth by 0.2 percentage points. If other nations counter with similar tariffs, the decline could worsen.
Such actions could also diminish U.S. GDP by 0.4%, and if trading partners respond in kind, the contraction could deepen to a 0.9% reduction. Conversely, the World Bank projected that U.S. growth might see a 0.4 percentage point bump in 2026, assuming tax cuts are extended, with minimal global repercussions.
The World Bank’s biannual Global Economic Prospect report paints a picture of stagnation, with global growth sticking at 2.7% through 2025 and 2026, mirroring 2024’s forecast. It highlights a bleak future for developing economies, which face their weakest growth outlook since the start of the century, further exacerbated by dwindling foreign direct investment and heightened trade restrictions.
Growth in these regions is anticipated to hover at 4% over the next two years, constrained by heavy debt, insufficient investment, lackluster productivity, and mounting costs related to climate change. These factors collectively dampen output, which is forecasted to trail pre-pandemic trends by more than 5% by 2026.
The gap between affluent and less affluent nations is expanding, with the average per capita growth in poorer countries, excluding China and India, falling short by half a percentage point compared to wealthier nations since 2014.
The World Bank further underlines potential downside risks to the global economy, particularly from trade barriers erected primarily by advanced economies, and the unpredictability of future policies that curtail investment and hinder growth.
While global trade in goods and services is poised to grow by 3.1% in 2025 and 2026, it remains below pre-pandemic norms, adding another layer of uncertainty to the world’s economic outlook.
