Global Economic Brakes: Trump Tariffs Ignite Trade Turmoil

Fitch Ratings warns that President Trump's tariffs have launched a trade war, diminishing US and global growth, hiking inflation, and delaying Federal Reserve rate cuts. With adjustments in growth forecasts and rising uncertainty, world economies like Mexico, Canada, and Europe brace for impacts from US tariff policies.

President Donald Trump's imposition of reciprocal tariffs has ignited a global trade war, potentially stunting economic growth in the US and worldwide, according to Fitch Ratings.

The rating agency has revised the US growth forecast for 2024 down to 1.7% from 2.1%, with 2026 projections cut further amid an expected inflation spike and delayed Federal Reserve rate cuts.

Europe faces weakened growth, as fiscal measures in China and Germany attempt to counteract tariff impacts, while Canada and Mexico are anticipated to enter recessions.

Fitch highlights that an effective US tariff rate could reach unprecedented levels, with forecasts suggesting a rate of 18% this year. Significant uncertainty remains regarding the potential escalation of tariffs as the US targets an import substitution agenda.

These tariff hikes could undermine US consumer purchasing power, inflate costs for businesses, and deter investment, while global manufacturers and US exporters feel the pressure of retaliatory tariffs.

Fitch calculates that US, Chinese, and European GDPs could each shrink by roughly 1% by 2026, despite fiscal efforts in Germany and China aimed at softening the blow.

With the tariff shock possibly adding a percentage point to US inflation, Fitch believes the Federal Reserve may delay further rate cuts until late 2025.

(With inputs from agencies.)