Trade Turmoil: Canada and Mexico's Economic Growth Set to Decline

The OECD has warned that escalating US trade tariffs will severely impact Canada and Mexico’s economies, projecting a noteworthy decline in growth while hinting at broader global repercussions.

The latest OECD forecast has signaled a concerning outlook for Canada and Mexico amidst escalating trade tensions driven by US tariffs. The implications are stark, with predictions of drastically reduced growth and heightened inflation across the globe.

In its report, the OECD indicated that both Canada and Mexico are poised to bear the brunt of the trade war instigated by the US, particularly since both nations have faced some of the most stringent tariffs. The economic growth forecast for Canada has been slashed significantly—projected at only 0.7% for this year and next, a drastic fall from the previously predicted 2%. Mexico, on the other hand, may see its economy shrink by 1.3% in 2024 and a further contraction of 0.6% in the subsequent year, instead of the anticipated growth rates of 1.2% and 1.6%.

These tariffs, including a 25% levy on steel and aluminum imports and additional taxes on a range of imports from Canada and Mexico, have also led to expected downturns in US economic growth, now forecasted at 2.2% for this year and 1.6% by 2025. While US growth predictions have been reduced, the OECD slightly raised its outlook for the US economy to 4.8%.

The report highlights the causal relationship between increasing trade barriers and reduced consumer spending, cautioning that the ongoing instability is making both household investments and international trade precarious. It suggests that the rising costs from tariffs will contribute to prolonged high inflation rates, necessitating higher interest rates for an extended period.

The OECD's warning encompasses global economic growth, projecting a decline from 3.2% in 2024 to 3.1% in 2025 due to persistent trade tensions. High-profile entities like Tesla have also expressed concerns, noting potential harm to US exporters due to retaliatory measures from other nations.

In the UK, growth forecasts have similarly seen cuts, now expected at 1.4% in 2025, while the outlook remains more optimistic than the Bank of England’s projections of merely 0.75%.

With these developments, the world economy stands at a crucial juncture, marked by fears of further fragmentation due to tariffs and trade disputes, signaling that this turbulent phase may lead to deeper and prolonged economic challenges.