How Trump’s Tariffs Are Hitting Global Economic Growth
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This week, the International Monetary Fund is holding its spring meeting in Washington, D.C. Around this time of year, every year, central bank governors and finance ministers from around the world all arrive in D.C. to meet with the World Bank and the IMF. It's kind of all part of the U.S. leadership of the global economy. Bloomberg global economy reporter Enda Curran has covered the meeting before. Normally, the conversations are on growth and inflation and very boring stuff that people aren't interested in.

Because right now, world economies are in a moment of unprecedented uncertainty. Trump's tariff announcements have caused ongoing volatility in markets. They're impacting consumer sentiment. And they're threatening the U.S.'s reputation as a financial safe haven.

Earlier this week, the IMF released a forecast predicting a global economic slowdown. It was a big warning from the IMF this week, premised on the impact of tariffs and trade uncertainty, that those policies that the U.S. are pursuing are going to hurt economic growth, not just in the U.S., but around the world.

This morning, all eyes were on U.S. Treasury Secretary Scott Besant, who reaffirmed U.S. support for the IMF while calling on the institution to help rebalance international trade. My goal this morning is to outline a blueprint to restore equilibrium to the global financial system and the institutions designed to uphold it.

I'm Sarah Holder, and this is The Big Take from Bloomberg News. Today on the show, how the world's top economists are assessing the impact of the U.S.'s trade war and what it means for global economic output and the GDPs of countries around the world.

At its core, the IMF performs two functions. It identifies potential financial and economic risks across the globe. And it's a crisis lender. So when a government runs out of money, the IMF can step in as a lender and to advise on next steps. It's one of the world's, if not the world's, most premier economic institution. A big feature of the IMF Spring Meeting is its global economic outlook, its gut check of the world's economic health.

Only this year, that forecast had to be overhauled in a matter of weeks. I want to get meta for a moment and just talk about the forecast itself and how it was made. The IMF is calling this a reference forecast because its economist had to scrap projections. Just how unusual is that?

It's very unusual. So the IMF forecasting round would obviously take several months, typically speaking. They're not just forecasting one economy. They're trying to pull together aggregate numbers from all around the world and pull together a clear picture on where things are headed, which is useful for investors and for analysts alike.

So they had that process underway. That was in more or less in place until April 2nd, when the new tariffs were announced and IMF themselves said they had to tear up that whole set of forecasts, start again, and this time introduce kind of scenarios in the forecast. Instead of coming out with one number, this is what we see and this is what we think is going to happen. They had to factor in a range of here's what we know so far.

Here's what might happen, but this may also happen. We don't know what's going to happen. This year's reference forecast was especially grim. The IMF projects that global GDP will grow just 2.8%. That's down from previous projections made before Trump's Liberation Day tariffs. The U.S. GDP was also revised down by nearly a full percentage point.

Just to make sense of that 2.8% number a little bit more, the IMF isn't projecting that growth is going to stop, but just that it's going to slow down. What does that actually look like in practice? How might that show up for the average person who sees this headline and is unsure what to make of it?

It's probably going to be felt most acutely in those economies that manufacture a lot of goods for export and especially for export to say the US. So there are economies there in Southeast Asia, for example, Vietnam, you would say it would be vulnerable to a big slowdown in trade.

China's manufacturing sector would obviously be vulnerable to a big slowdown in trade with the US. We're already hearing through our own reporting and our colleagues around the world that shipments are being cancelled and factories are putting production on hold. That will obviously impact employment in those manufacturing heavy economies.

Mexico is another one that would be vulnerable to an impact from tariffs. So yes, you do have a global headline figure. Not everyone will necessarily feel this in the same way. Depends what sector of the economy you work in, services or manufacturing or anything else.

There are some positives. Germany is going to spend the money that's going to lift the European economy. China, too, is putting money into its economy. But the real impact, I think, will come to those who depend on manufacturing and on trade and on that side of things. Like the US, China had a sizable downgrade.

in the latest IMF projections. China growing at 4% is well below the official target where the government wants to grow, for example. So that tells you the pressure China will be under to put money into the economy and support things and make sure that those people are finding work and factories have work and that they can keep things ticking over there.

The US also had that downgrade of almost one percentage point. That's a huge downgrade for the world's biggest economy. And the US has been the locomotive for global growth over the past few years. US consumption has been so important for those exporting nations around the world. And of course, that's part of the big argument now over imbalances. So when you have the US being downgraded the way it has, you have China being downgraded the way it has. They're the world's number one and two economies.

that will obviously have spillover for the rest of the global economy and that's why they're warning of a slower year for activity everywhere.

Our colleagues at Bloomberg Economics ran their own forecast and landed in a similar place. President Trump has introduced an absolutely enormous tariff shock into the global economy. Tom Orlick is chief economist for Bloomberg Economics. U.S. tariffs, the average tariff which U.S. charges on imports, has gone from 2% before Trump took office to

all the way up to above 20%. And if you want to understand the magnitude of that shock, well, that takes US tariffs up to a level not seen in the last 100 years. And modeling that shock is really pretty difficult. It's difficult because...

We don't know where the Trump tariffs are going to settle, right? Tariffs came out really high on Liberation Day, April the 2nd, and then they were pretty quickly revised down. But there's a threat that they could be revised up again if other countries don't give the US what it wants. And it's difficult because...

Well, in general, the way economic forecasts work is you look at a similar episode in history, you see what happened then, and you apply that as a kind of template to thinking about the outlook. But this time round... It's a lot harder when there is no precedent.

Exactly, Sarah. Welcome to the economics profession. There just hasn't been a shock like this since World War II, so it's hard to find that template. So all of that is to say there are some pretty serious caveats, a pretty wide band of uncertainty around our forecast

And I'm sure if you had the IMF here on the Big Take podcast, they'd say the same thing. That said, we took the Trump tariffs, we plugged them into our model of the global economy. And what we're anticipating is that global growth in 2025 is going to come in at around 2.7%. That's much lower than the 3.1% forecast that we had before the Trump tariffs were introduced.

We think the tariffs are going to stay in place. Trump wants to rebalance trade. He wants to raise revenue. You can't do that if tariffs are only in place for a short time. So our forecasts for 2026, 2027, they've come down a lot as well.

When you add it up, we're looking at a cost to global GDP over the next three years of around $2 trillion if those Trump tariffs stay in place. Tom, just how significant is a $2 trillion loss to the world's GDP? How big is $2 trillion? So if we look at some of the biggest economies in the world, well, Brazil, Canada, Italy, Russia, they all have annual GDP of around $2 trillion worldwide.

So a $2 trillion loss is roughly equivalent to saying goodbye to the entire annual output of one of those big economies. If we think about the historical context, is this as big as the COVID shock? Is this as big as the global financial crisis shock? No, it's not quite of that level of magnitude, but we're still talking about a really serious hit.

After the break, we look at the impact these kinds of forecasts could have on global policy and whether any trade deals could happen on the sidelines of the IMF meetings this week. AI is redefining what's possible for your business. Are you up for the challenge? Microsoft is helping leaders like you get AI ready faster with unified data and simplified platform management, unlocking up to 150% improved output.

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Both the International Monetary Fund's forecasts and Bloomberg Economics projections highlight how difficult it will be for the global economy to absorb Trump's tariffs and the political uncertainty that comes with them. The global economy has just been hit by an absolutely enormous shock, right? A big part of that shock comes from the tariffs themselves. An additional part of it comes from this sense of a paradigm shift.

For the last 40 years, the US has been the guarantor and the champion of the global free trade system. But now President Trump has come in and said, actually, that's not correct. It's not correct. Trade creates some very significant costs.

Huge costs for factory workers in the United States who lost out as jobs were shipped overseas to China, to Mexico. National security risks as we have a massive trade deficit with China, our main geopolitical competitor. Doesn't make sense to rely on China for so many crucial goods.

So President Trump has come in and introduced this paradigm shift. And that, along with the tariff shock itself, is an important reason why everybody is scrambling to rethink their forecasts. I'm curious, in a time of such global uncertainty, how much weight policymakers and global leaders and economists such as yourselves put on these forecasts? I think, being really honest, any forecasts made now are inevitably going to be wrong, right?

They're going to be wrong because we don't know what's going to happen to tariffs. They could go up, they could go down, and they're going to be wrong because other stuff is going to happen, right? Stuff that we couldn't foresee. So what we hope with our forecast is partly that we're providing people with a plausible base case, but more important, that we're providing people with a way of thinking about the dynamics at work.

Now, are these forecasts changing the view in the White House? I doubt it. I think what potentially is changing the view in the White House is what's happening in the financial markets. And what we've seen since that April the 2nd Liberation Day is just enormous volatility in global markets.

and bad news for the United States, right? Global stocks are down, US stocks are down more. The dollar has significantly weakened. There was a moment last week where it felt like the treasury market could be on the brink of dysfunction, right?

President Trump, his advisers, they're looking at these market moves. I think that is an important part of the reason we've seen a pullback from some of those very, very elevated tariffs that were introduced on April the 2nd. How might further escalations or de-escalations in the trade war impact that top line number? So I think there's a few things to think about here, Sarah. So the first one is, I think risks to tariffs are now in both directions, right?

Trump has said he's giving a 90-day reprieve to countries to give them a chance to come to the US with concessions. We've heard Treasury Secretary Scott Bassett over the last few days talking about how the current tariff rate on China isn't sustainable. And President Trump saying he'd be open to significantly reducing it if tariffs go up.

Well, that's going to be a bigger blow to US growth and to global growth. If tariffs come down, well, that's going to be a smaller blow. Why do we think that some substantial tariffs are going to stay in place, even if they're not at exactly the current level? Well, a couple of reasons. The first is that Trump is serious about the idea that global trade needs to be rebalanced, right? And you can't rebalance global trade with temporary tariffs.

The second reason is that Trump has identified US debt as a big problem and he wants to cut taxes to boost US economic dynamism and he needs to find some revenue to offset those tax cuts and to keep US debt on a sustainable trajectory.

Now, how he wants to do that is by raising tariff revenue. And once again, you can't raise tariff revenue with temporary tariffs, right? If you want to be raising tariff revenue, not just right now, but into 2026, 2027, 2028, well, those tariffs need to stay in place. After I spoke with Enda Curran this afternoon, he had to go back to covering the IMF meetings. But before he left, I asked him what we could expect from the rest of this week. Are there any trade deals being negotiated right now at the IMF meeting?

Yes, the Treasury delegation will be meeting with lots of countries who are here. The Treasury Secretary has said they'll be meeting delegations. Some of the officials here, for example, the India delegation earlier today spoke about that they're here to talk business with India.

the US and we know Japan is advancing that process too. Now, I don't expect there will be deals announced per se, but yes, there are meetings happening with Treasury, with the Trade Representative Office, with Commerce, they're all sitting down, they're huddling, they're swapping notes. I doubt we'll get major deals like announced and signed here, but it's part of the process.

This is The Big Take from Bloomberg News. I'm Sarah Holder. This episode was produced by Julia Press with support from Rachel Lewis-Kriske. It was edited by Chris Anstey and by our senior producer Naomi Chavon and deputy executive producer Julia Weaver. It was fact-checked by our editorial team and mixed and sound designed by Alex Sugiura.

Our senior editor is Elizabeth Ponso. Our executive producer is Nicole Beamster-Boer. Sage Bauman is Bloomberg's head of podcasts. If you liked this episode, make sure to subscribe and review The Big Take wherever you listen to podcasts. It helps people find the show. Thanks for listening. We'll be back tomorrow. ♪

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