Trade Tensions Threaten Economic Stability in Canada and Mexico

The OECD's latest economic report reveals that escalating tariffs from the U.S. are expected to significantly hamper growth in Canada and Mexico, with forecasts slashed for both nations. Canada’s growth is projected at just 0.7% for the upcoming years, while Mexico risks falling into recession.

Trade tensions, particularly between the U.S. and its North American neighbors, are taking a toll on economic forecasts. The OECD recently highlighted that Canada and Mexico face the brunt of imposed tariffs, potentially derailing their growth prospects. In a notable revision, the OECD downgraded Canada's economic growth forecast to a meager 0.7% for both this year and next, down from an earlier prediction of 2%. Similarly, Mexico is now expected to experience a contraction of 1.3% this year, with further decline anticipated in the following year.

The U.S. administration has implemented a slew of tariffs, including a punitive 25% tax on steel and aluminum imports, impacting trade dynamics across North America and beyond. While Canada and the European Union have vowed to retaliate, the U.S. has simultaneously placed 25% tariffs on other imports from these nations and a 20% tariff on goods from China. As a consequence of these heightened trade barriers, the OECD noted a palpable impact on investment and consumer spending.

Moreover, the U.S. growth forecast also shows signs of strain, with the OECD predicting a slowdown from previous estimates, anticipating an economic growth of 2.2% this year, down from 2.4%. Despite the ongoing trade dispute, optimism for China's growth has been slightly tempered, marking a prediction of 4.8%.

The climate of uncertainty and elevated tariffs are set to drive inflation rates upwards, asserting that interest rates may remain elevated as a result. The OECD forewarned of significant risks, asserting that the fragmentation of global trade could lead to wider economic ramifications. The group’s overall world growth forecast is now at a decline from 3.2% in 2024 to 3.1% in 2025, indicating that escalating trade tensions will weigh heavily on global economic performance.

Additionally, the OECD reduced its growth outlook for the United Kingdom to 1.4% in 2025 and further to 1.2% in 2026, showcasing a similar trend in the impacts of trade conflicts. Amid these developments, concerns from U.S. exporters, such as Tesla, highlight the disproportionate challenges they could face should trade tensions continue to escalate.