U.S. 10% across-the-board tariffs: World Bank warns that Trump’s tariffs could reduce global growth outlook

The World Bank on Thursday warned that U.S. across-the-board tariffs of 10 per cent could reduce already lacklustre global economic growth of 2.7 per cent in 2025 by a 0.3 percentage point if the country’s trading partners retaliate with tariffs of their own.

 

Such tariffs, promised by U.S. president-elect Donald Trump, could cut U.S. growth – forecast to reach 2.3 per cent in 2025 – by 0.9 per cent if retaliatory measures are imposed, the bank said, citing economic simulations. But it noted that U.S. growth could also increase by a 0.4 percentage point in 2026 if U.S. tax cuts were extended, it said, with only small global spillovers.

 

Mr. Trump, who takes office Monday, has proposed a 10-per-cent tariff on global imports, a 25-per-cent punitive duty on imports from Canada and Mexico until they clamp down on drugs and migrants crossing borders into the U.S., and a 60-per-cent tariff on Chinese goods.

 

The World Bank’s latest Global Economic Prospect report, issued twice yearly, forecast flat global economic growth of 2.7 per cent in 2025 and 2026, the same as in 2024, and warned that developing economies now faced their weakest long-term growth outlook since 2000.

The multilateral development bank said foreign direct investment into developing economies was now about half the level seen in the early 2000s and global trade restrictions were five times higher than the 2010-2019 average.

 

It said growth in developing countries is expected to reach 4 per cent in 2025 and 2026, well below prepandemic estimates owing to high debt burdens, weak investment and sluggish productivity growth, along with rising costs of climate change.

 

Overall output in emerging markets and development economies was expected to remain more than 5 per cent below its prepandemic trend by 2026, owing to the pandemic and subsequent shocks, it said.

 

“The next 25 years will be a tougher slog for developing economies than the last 25,” World Bank chief economist Indermit Gill said in a statement, urging countries to adopt domestic reforms to encourage investment and deepen trade relations.

 

Economic growth in developing countries dropped from nearly 6 per cent in the 2000s to 5.1 per cent in the 2010s and was averaging about 3.5 per cent in the 2020s, the bank said.

 

It said the gap between rich and poor countries was also widening, with average per capita growth rates in developing countries, excluding China and India, averaging half a percentage point below those in wealth economies since 2014.

The sombre outlook echoed comments made last week by the managing director of the International Monetary Fund, Kristalina Georgieva, ahead of the global lender’s own new forecast, to be released on Friday.

 

“Over the next two years, developing economies could face serious headwinds,” the World Bank report said.

 

“High global policy uncertainty could undercut investor confidence and constrain financing flows. Rising trade tensions could reduce global growth. Persistent inflation could delay expected cuts in interest rates.”

 

The World Bank said it saw more downside risks for the global economy, citing a surge in trade-distorting measures implemented mainly by advanced economies and uncertainty about future policies that was dampening investment and growth.

 

Global trade in goods and services, which expanded by 2.7 per cent in 2024, is expected to reach an average of about 3.1 per cent in 2025-2026, but to remain below prepandemic averages.

 

 

 

 

This article was first reported by Reuters