(19 March 2025 – Global) The second term of President Trump’s administration has triggered a global trade war that will curtail US and world growth, drive US inflation higher and delay Federal Reserve rate cuts, Fitch Ratings reports.
Fitch cut both its US 2025 growth forecast to 1.7 percent from 2.1 percent in the December 2024 Global Economic Outlook (GEO) and 2026 forecast to 1.5 percent from 1.7 percent. These rates are well below trend and down from almost three percent per annum growth in 2023 and 2024.
The size, speed, and breadth of US tariff hike announcements since January is staggering. The US effective tariff rate (ETR) has already increased to 8.5 percent from 2.3 percent in 2024 and is likely to rise further. Fitch’s latest economic forecasts assume a 15 percent ETR will be imposed on Europe, Canada, Mexico, and others in 2025, and 35 percent on China.
This will push the US ETR to 18 percent in 2025 before moderating to 16 percent in 2026 as the ETR on Canada and Mexico falls to ten percent. This would be highest rate in almost a century.
“There is huge uncertainty about how far the US will go and our assumptions could be too harsh. But there are also risks of a larger tariff shock including from an escalating global trade war. Moreover, the US administration has set out an import substitution agenda, aimed at boosting US manufacturing and reducing the trade deficit, which it believes can be achieved with higher tariffs” commented Fitch Chief Economist, Brian Coulton.
“With the tariff shock estimated to add one percentage point (pp) to US near-term inflation, we believe the Fed will delay further easing until Q4 2025. We now expect the Fed to cut just once this year, but then expect three more cuts in 2026 as the economy slows and tariff levels stabilise.”
Click to download the full Fitch Global Economic Outlook – March 2025.