IMF warns US tariffs signal slower global growth ahead

The IMF warned that rising US tariffs are marking the start of a new global era of slower growth and heightened economic fragmentation. Since January, President Trump has unleashed sweeping import duties on a wide range of goods, targeting not only China but also traditional allies such as the European Union, Japan, and Canada.

IMF warns US tariffs signal slower global growth ahead

This has triggered a cascade of retaliatory measures, pushing global trade barriers to levels not seen since the Great Depression and signaling a shift away from the free trade consensus that has underpinned global economic expansion for decades. In its latest World Economic Outlook, the IMF slashed its global growth forecast for 2024 to 2.8% from 3.3%, warning that the effects of trade disruptions are already rippling through supply chains, investment flows, and business sentiment. The Fund sees continued weakness through at least 2026, citing rising protectionism and diminished multilateral cooperation as key drags on economic prospects. The United States is expected to be among the hardest hit, with projected 2025 growth downgraded sharply to 1.8% from a prior estimate of 2.7%. Mexico, China, and the Eurozone are also forecast to experience significant slowdowns as they absorb the impact of disrupted trade routes, higher input costs, and reduced export demand.

Tariffs impact on global economy

While President Trump has argued that tariffs will revive US manufacturing and correct longstanding trade imbalances, the IMF countered that such measures are unlikely to deliver the promised benefits. Instead, it emphasized that automation and technological change—not international trade—have been the primary drivers behind the loss of manufacturing jobs in developed economies. The Fund warned that tariffs could backfire by making industries less competitive, slowing innovation, and raising production costs, ultimately undermining the very sectors the administration seeks to protect. Adding to the challenges, the IMF forecast a rise in inflation pressures, particularly in the United States, as tariffs drive up the cost of imported goods and ripple through broader consumer prices. Elevated inflation could, in turn, limit the Federal Reserve’s ability to cut interest rates to support growth, complicating the macroeconomic policy response at a time when flexibility may be most needed.

Importance of central bank independence

The Fund also issued a pointed reminder of the importance of central bank independence, cautioning that political interference—real or perceived—could severely damage policy credibility and financial market stability. In a particularly stark warning, the IMF said that sustained tariff hikes, combined with potential instability in markets and monetary policy, could gradually erode the US dollar’s dominant global role as the primary reserve currency—a linchpin of American economic power. Amid these rising risks, the IMF called for renewed global dialogue to de-escalate trade tensions and reinvigorate multilateral cooperation, stressing that without a course correction, the world economy could be entering a prolonged period of slower growth, higher uncertainty, and greater systemic vulnerability.