In January 2025, the International Monetary Fund (IMF) published its much-anticipated World Economic Outlook Update. This systematic survey of global macroeconomic conditions has long been a trusted prediction of the global economy’s future. This year, the World Economic Outlook had three major takeaways for its readers: a post-pandemic contraction had largely been averted, the United States’ economy was expected to grow at the same time that other countries’ growth was stalled, and all of this was conditional on the incoming U.S. presidential administration and how far it would take its economic threats.
Now, in April, the economic policies that the IMF warned of have come to fruition. The U.S. has implemented deregulation, broad tariffs, and a curb on immigration, all of which have had an economic impact beyond the U.S. itself. In this deeply uncertain time for the global market, the only certainty is this: the U.S. has seriously undermined its credibility in the global economy. As its previously secure spot as the world’s most powerful economy is called into question, the U.S. is isolating itself from economic allies and gambling against globalization.
Original United States Standing
Before the radical changes to U.S. economic policy, the IMF predicted a good economic year for the United States. The IMF tracks and collects data on a number of economic measures, but uses Gross Domestic Product (GDP) as an overall indicator of economic health. A growing GDP is considered a positive sign, as increased output is often coupled with lower unemployment and higher rates of disposable income among consumers. Based on an analysis conducted in October of 2024, global GDP was projected to increase by 3.3 percent this year and next. This represents modest growth consistent with post-pandemic rates. For reference, global GDP increased by 3.2 percent in 2022 and 2.8 percent in 2023.
The World Economic Outlook published in January also predicted that U.S. GDP would grow by 2.7 percent, an increase from previous estimates of 2.2 percent. This growth rate is also consistent with recent years, with U.S. GDP growing by 2.5 percent in 2022 and 2.9 percent in 2023. Yet, claims of U.S. economic dominance this year stem not from the net growth of its economy, but rather the fact that its economy is predicted to grow at the same time that other economies are experiencing obstacles to their growth.
The IMF’s chief economist, Pierre-Olivier Gourinchas, commented on the report shortly after its publication: “The big story is the divergence between the U.S. and the rest of the world. We have stronger potential output growth in the U.S. compared to prepandemic, and we have weaker potential growth in other areas, like the euro area or China.” China’s and the euro area’s GDP is expected to grow by 4.5 percent and 1.0 percent in 2025, respectively. China’s growth rate, while usually much higher than the United States, reflects a sharp drop from its 2023 growth rate of 5.2 percent and is much lower than its target growth rate of 5 percent. This drop occurs amid concerns about Chinese deflation, the lowered prices of goods and services, and dropping levels of Chinese imports. Moreover, the 1 percent prediction for the euro area is motivated largely by heightened levels of political uncertainty, according to the report.
However, even in January, the IMF warned of potential downturns in growth rates depending on the incoming U.S. administration’s economic policies. Its report reads, “An intensification of protectionist policies, for instance, in the form of a new wave of tariffs, could exacerbate trade tensions, lower investment, reduce market efficiency, distort trade flows, and again disrupt supply chains. Growth could suffer in both the near and medium term, but at varying degrees across economies.” Even in the long term, the IMF shared concerns that policies like financial deregulation will undermine international faith in the U.S. as it disrupts markets, “weakening the role of US Treasuries as the global safe asset, among other things.”
Global Response
As the Trump Administration took power in late January, it became clear that the U.S. would be implementing many of the aggressive economic policies that the IMF had warned of. Most prominently, the Trump administration has implemented broad tariffs across all U.S. trading partners, ranging from 10% to as high as 145%, in the case of China. Many of these tariffs have yet to take full effect, with the Trump administration pausing, unpausing, and re-pausing tariffs on Canada and Mexico. There is also a 90-day pause on the sweeping 10% or higher tariffs announced for all U.S. trading partners on April 2nd, 2025, an announcement that caused U.S. stock markets to drop sharply.
The tariffs themselves were expected, but what surprised experts was that they did not target specific goods as tariffs historically have done, but rather blanketed all imports from a certain country with little regard to the value of these imports or if the U.S. can secure them by other means. Another shock was that they seemed to recognize no historical relationship between the U.S. and its trading partners. For the first time, tariffs seemed to be calculated based on the trade deficit alone with very little concern for a nation’s partnership with the United States in other areas. This departure from the historical economic global order has provoked mixed reactions.
Several nations have attempted to negotiate with the Trump Administration, including Japan, Vietnam, and South Korea. However, other nations, including some of the U.S.’ closest trading partners, have retaliated against the U.S.’ unilateral move with tariffs of their own. For instance, the EU and the U.S. have always enjoyed a friendly relationship, both economically and diplomatically. However, shortly after the announcement of U.S. tariffs, the EU voted to impose tariffs of up to 25% on selected U.S. goods, such as steel and trucks, specifically selected for their value to the U.S. economy while also avoiding raising costs for European consumers. While EU tariffs are temporarily paused in line with the U.S. pause on its tariffs, the EU has made clear that it views the U.S.’ move as “unjustified” and “risking economic harm to both sides, as well as the global economy.” Independent European leaders have voiced their own views of the escalating trade tensions. Italian Prime Minister Giorgia Meloni, oftentimes considered an ally of President Trump, called the tariffs “wrong” and a move that “does not benefit any of the parties involved.” President Emmanuel Macron of France has even called on EU businesses to avoid investing in the U.S. until trade tensions are clarified.
Meanwhile, China has also responded with tariffs of its own, increasing certain good-specific tariffs up to 125%. China has also reportedly called the U.S.-perpetrated trade war a ‘joke’ and cites that it will not increase its tariffs anymore. The spokesperson for China’s Commerce Ministry dismisses the threat of even further increased tariffs, stating that it “fully exposes the fact that the United States has become irrational in instrumentalizing and weaponizing tariffs.” Moreover, the indiscriminate threat of tariffs from the U.S. has allowed China to foster closer economic ties with a number of countries, including Spain, South Korea, and Japan. Even the EU has signaled that it is willing to re-open negotiations with China regarding trade barriers between them, a move made possible due to the U.S. economic threat.
A Risky Future
Perhaps the only certainty that can be derived from the increased economic uncertainty is that tariffs will hurt both the U.S. domestic economy and the global economy in the immediate future. The IMF has already revised its 2025 growth predictions, stating that global growth will stall to 2.8 percent, a 0.5 percent drop from earlier predictions, and inflation will rise. Importantly, the future of the U.S. economy has completely transformed from where it was predicted to be at the beginning of the year. Now, economists are predicting that Trump’s tariffs could lower U.S. GDP by 0.8 percent and cause a 7.1 percent increase in U.S. prices. Moreover, the Trump Administration has demanded the lowering of interest rates, which raises inflation concerns, and has threatened to fire the Chairman of the Federal Reserve for resisting political pressure. Moreover, in line with IMF predictions, bond prices tanked after the announcement of sweeping tariffs, suggesting that investors are distrustful of the U.S. Treasury, a departure from its longtime reputation as a safe-haven. While the U.S. domestic narrative is that tariffs are a necessary step to return manufacturing jobs to the U.S., experts remain concerned that the administration is not sufficiently facilitating an economy that could produce these jobs.
Moreover, there is a distinct possibility that the U.S. loses this trade war, especially to China. This would not be the first time that the Trump Administration lost a trade war with China; the U.S.-China trade war perpetrated by Trump during his first term is largely considered a failure for the U.S. Now, the U.S. administration sees its higher relative imports as an advantage, saying that since the U.S. currently imports more goods, tariffs will have a higher impact on the targeted economies. Yet, experts argue that this is rather a disadvantage, as the U.S. has become dependent on foreign goods that it cannot get from other places nor yet produce itself. While the U.S. might’ve been able to coordinate with economic allies in Europe to weather the transition period and achieve its desired result of reclaimed jobs from China, the U.S. tariffs also antagonize EU partners, leaving the U.S. on its own.
Even if the U.S.’ gamble pays off, it will not be the reliable trade partner it once was, and may not even retrieve the economic advantage it once owned. UK-based asset manager David Roberts warns that the U.S. is “throwing away” its economic dominance and, at the same time, uniting global economies against it. The U.S. seems to be trying to hurl the world into a new economic global order, one that is heavily characterized by “an every nation for itself mindset” instead of the rules-based free trade that distinguished the post-Cold War economic order. If the global response so far is to persist, the rest of the world is reluctant to join the U.S. in this endeavor, and may even be willing to band together as the U.S. strikes out alone.
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