Trump’s tariffs to tip world over into ‘recessionary phase’
A locking of horns between the US and China over tariffs could tip the world economy into recession as soon as this year, a closely-watched forecast has suggested, as businesses wrestle with the fallout of declining global trade volumes.
Global growth is set to slow to 2.3 per cent this year, according to projections by the United Nations Trade and Development (UNCTAD) straying into territory consistent with a “global recessionary phase”.
A bitter trade war between the world’s two largest economies shows no signs of easing as US President Donald Trump refuses to budge on his 154 per cent tariffs on China after it imposed a retaliatory 125 per cent levy on US goods.
UNCTAD’s research suggested that the dispute could send deep shockwaves through the global economy.
The trade policy body said worries over economic policy shifts were at their highest level this century. It also said the euro area would see the lowest GDP growth out of any region in the world this year.
In a separate report, the World Trade Organisation (WTO), which is responsible for regulating international trade, said global trade would decline by at least 0.2 per cent this year, a major downgrade from its previous forecast of a 2.7 per cent expansion.
The WTO’s director-general, Ngozi Okonjo-Iweala, said the “decoupling” of US and China was “a phenomenon that is really worrying to me”.
But Okonjo-Iweala, formerly Nigeria’s finance minister, also called for supply chains to diversify as she claimed the “over-concentration” of semi-conductor or vaccine production in certain parts of the world was unhealthy for the global economy.
Before fresh tariffs were unveiled earlier this month, total trade between the two countries was estimated to be worth more than $580bn. The US’ trade imbalance with China reached nearly $300bn in 2024.
Plunging stock markets and shocks to the global order led banking giants Goldman Sachs and JP Morgan to raise their recession odds for the US.
China posted robust growth rates of 5.4 per cent for the first quarter of the year on Wednesday. But an abrupt slowdown is expected with UBS slashing the country’s annual GDP growth to 3.4 per cent, far lower than China’s own five per cent target.
The full-blown trade war is likely to weigh down on UK growth as a reeling global economy would weaken demand for UK goods, Bank of England officials have warned, as weak markets indicated firms were less optimistic about making new investments.
The Labour government still believes it can salvage a deal and avoid the worst effects, including baseline ten per cent tariffs on UK goods in 90 days.
US vice-president JD Vance suggested in an interview with Unherd that there was a “good chance” a trade deal would be agreed with the UK.
White House press secretary Karoline Leavitt provided another hint that a trade deal could be agreed as she said an announcement could come “very soon” after the US received proposals from 15 countries.
Chancellor Rachel Reeves has said she will meet with her US counterpart Scott Bessent in the next few weeks as the UK pushes for greater trade cooperation with the US.