Tariff Policies Threaten US, Global Growth, Fitch Warns — Evening Brief – 03.25.25
President Donald Trump’s tariff policies are creating significant uncertainty, weighing on both the U.S. and global economic outlooks, according to Fitch Ratings’ March 2025 Global Economics Outlook. The report highlights the risk of a global trade war, projecting reduced growth, higher U.S. inflation, and delayed Federal Reserve rate cuts.
Global Economic Impact
Fitch has downgraded its global GDP growth forecast for 2025 to 2.3%, down from 2.6%, with 2026 expected to remain subdued at 2.2%. This follows three years of approximately 3% annual growth. The report attributes this slowdown to the U.S.’s aggressive tariff hikes, which threaten to disrupt global trade dynamics. Fitch economists Brian Coulton and Alex Muscatelli warn, “The new US administration has started a global trade war that will reduce U.S. and world growth.”
U.S. Economic Outlook
“The size, speed, and breadth of US tariff hike announcements since January is staggering,” Coulton and Muscatelli said. In the U.S., the effective tariff rate (ETR) has surged to 8.5% from 2.3% in 2024, with projections indicating it could hit 18% by year-end—the highest in 90 years. This includes a 15% ETR on Europe, Canada, Mexico, and others, and a 35% ETR on China.
As a result, Fitch has lowered its U.S. growth forecasts to 1.7% in 2025 from 2.1% and 1.5% in 2026 from 1.7%. The Fed has taken note. Officials’ median projection also dropped to 1.7% in 2025, from their December projection of 2.1%, and 2026 growth to 1.8% from 2.0% prior.
The tariff increases are also expected to drive U.S. inflation to 3.6% in 2025, up from 2.9% in 2024, before easing to 3.3% in 2026. This persistent inflation is likely to delay Federal Reserve rate cuts, with Fitch anticipating only one 25-basis-point cut by year-end 2025, bringing the policy rate to 4.25%. In contrast, Fed officials project two cuts, targeting a rate of approximately 3.9%.
Regional Effects
The tariffs’ ripple effects are significant across key regions. Mexico: High trade exposure to the U.S. could lead to technical recessions. Fitch slashed Mexico’s 2025 growth forecast to 0% from 1.1% and Canada’s to 0.3% down 0.7 points. China: Facing a 35% U.S. tariff, China plans to ease monetary and fiscal policies, shifting to a “moderately loose” monetary stance and a “more proactive” fiscal approach. Still, growth is expected to slow to 4.4% in 2025 and 4.0% in 2026. Eurozone: Fitch cut its 2025 growth forecast to 0.7% from 1.2%, citing U.S. tariffs and weaker recent growth, despite fiscal boosts like Germany’s increased spending.
Uncertainty Ahead
The outlook is clouded by significant uncertainty. Fitch notes, “There is huge uncertainty about how far the U.S. 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.” This echoes Federal Reserve Chair Jerome Powell’s sentiment that the economic outlook is increasingly unpredictable, urging caution in interpreting forecasts.