International economic outlook: April 2025

Global Growth Prospects Hurt by Liberation Day

In the words of President Trump, “Liberation Day has come.” Liberation Day was top of mind before April 2, on April 2, and the fallout has kept Liberation Day top of mind ever since. April 2 marked an inflection point. Not only for tariffs and President Trump's assault on global trade, but for global financial markets and the global economy. Since President Trump held up a poster highlighting tariff rates applied to trading partners around the world, global growth prospects have dwindled. And while most reciprocal tariff rates have been lowered, the damage to global growth, at least in the short term, is likely done. Tariff headlines remain volatile. So just to take stock of where Trade War 2.0 currently stands, the U.S. effective tariff rate is a little under 25%, up from ~8% prior to Liberation Day. The overwhelming contributor to the 25% U.S. effective tariff rate are levies imposed on China. China has been the primary retaliator to Liberation Day, opting to raise tariff rates on the United States and erect other non-tariff barriers to trade. The result: a full-blown tit-for-tat battle with U.S. effective tariff rates specifically imposed on Chinese exports to the U.S. reaching 113%. A severed U.S.-China trade relationship along with other bilateral trade disruptions involving the United States should place notable downward pressure on global growth. Putting numbers to that, we now forecast the global economy to grow just 2.3% in 2025. Prior to Liberation Day, we forecast the global economy to expand 2.7% in 2025. While 2.7% growth is far from an inspiring expansion, the downgrade of our global GDP forecast by 0.4 percentage points in a month reflects how disruptive reciprocal tariffs are likely to be. We would also note that risks to global growth remain tilted to the downside. The rollback of levies on trading partners other than China is, in theory, temporary, and the original rates could be restored. Also, we are assuming trade deals are made with select partners, which lowers the overall effective tariff rate. It's very possible trade deals take longer to come to fruition, or do not materialize at all. Downside risks keep global recession—defined as global growth of 2% or slower—a very real possibility.

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