In its latest Economic Outlook report, the Organisation for Economic Co-operation and Development (OECD) has issued a cautionary statement regarding the potential consequences of increased tariffs implemented by the United States under President Donald Trump's administration.

The OECD forecasts that a 10 percentage point rise in bilateral tariffs across the board could result in a 0.6% reduction in the U.S. GDP over the next two years.

This potential decline poses a significant challenge to the U.S. economy, which is already experiencing the effects of existing tariffs.

Consequently, the OECD has revised its GDP growth forecast for the United States for 2025, lowering it from 2.2% to 1.6%.

Similarly, the growth estimate for 2026 has been adjusted from 1.6% to 1.5%.

The ramifications of the trade war extend beyond U.S. borders.

The OECD has revised its global economic growth forecast for this year down from 3.1% to 2.5%, with a similar adjustment for 2026, reducing the estimate from 3.0% to 2.9%.

Further increases in tariffs could exacerbate these declines.

Mathias Cormann, Secretary-General of the OECD, indicated during the presentation of the report that additional trade barriers or prolonged political uncertainty would further diminish growth prospects and likely raise inflation in nations implementing tariffs.

He noted that should the Trump administration proceed with an additional ten percentage point hike in tariffs, the global GDP could decline by an additional 0.3% over two years compared to current forecasts.

Cormann remarked on the shift from a period characterized by resilient growth and declining inflation to one of increased uncertainty.

He stated that current political uncertainty is undermining trade and investment, resulting in diminished consumer and business confidence, which in turn is negatively impacting growth outlooks.

The OECD's analysis attempts to quantify the ramifications of heightened tariffs, indicating that consequences on GDP could be exacerbated due to collateral effects from such measures.

Increased tariffs would lead to higher inflation rates, adding 0.8 percentage points to the annual rate for the U.S. and 0.5 percentage points globally.

Moreover, a reduction in U.S. imports could hinder the growth of exports from its trading partners.

The OECD emphasizes that the initial growth impacts could be magnified if coupled with a downturn in capital markets and a rise in risk premiums due to increased uncertainty, as well as higher consumer savings rates.

In a scenario where stock markets decline by 10% over two years, risk premiums rise by 50 basis points, and household savings increase by one percentage point, these disturbances could precipitate a reduction of approximately 1.2 points in global GDP by the second year.

In light of these findings, the OECD advises the United States to mitigate the current disruption and uncertainty to ensure sustained growth and economic resilience.

A key step in this direction is resolving trade tensions with international partners.

Cormann highlighted that crucial political priorities include fostering constructive dialogue that leads to a durable resolution of existing trade disputes.

Álvaro Pereira, Chief Economist of the OECD, echoed similar sentiments in the editorial of the report, stressing the vital role of policy in reducing uncertainty and promoting economic growth.

He underscored the importance of avoiding further fragmentation of trade and trade barriers, noting that agreements aimed at alleviating trade tensions and reducing tariffs will be instrumental in revitalizing growth and investment while curbing inflation.