Tariffs have emerged as the defining theme of President Donald Trump’s second term, with the US leader once again placing them at the centre of his economic narrative. In a pre-Christmas address to the nation, Trump reiterated his belief that higher import duties were delivering jobs, better wages and stronger growth for the United States. While those claims remain fiercely debated, there is little dispute that the sweeping tariff regime introduced since his return to office has altered global trade patterns and will continue to influence the world economy well into 2026.
International institutions have already factored the impact into their forecasts. The International Monetary Fund has revised down its projection for global growth in 2026 to 3.1%, compared with the 3.3% expansion it had anticipated a year earlier. The IMF attributed the downgrade in part to what it described as a “tariff shock”, even though the scale of new duties has been smaller than initially threatened. IMF managing director Kristalina Georgieva said global growth has slipped well below its pre-pandemic average of 3.7%, warning that the current pace is insufficient to meet public expectations for rising living standards. Other economic forecasts for 2026 paint an even bleaker picture.
Economists note, however, that the damage could have been far worse. Maurice Obstfeld of the Peterson Institute for International Economics, a former IMF chief economist, said a full-blown trade crisis was avoided largely because most countries chose not to retaliate aggressively against Washington. China was the notable exception, but its swift countermeasures prompted the US to pull back quickly. Despite this, after multiple rounds of negotiations, trade relations between the world’s two largest economies remain more strained than when Trump began his second term, with higher tariffs and tighter restrictions still in place on both sides.
The tariff regime has increased costs for businesses and injected uncertainty into investment decisions, effects that tend to accumulate over time through reduced efficiency. Some of the fallout has been softened by lower interest rates, a weaker dollar, extensive exemptions built into US tariff schedules and companies finding ways to work around the rules. Reflecting this resilience, the UN trade agency UNCTAD estimates that the value of global trade rose 7% last year to more than $35 trillion. Yet Obstfeld cautioned that the exemptions themselves create uncertainty, as companies struggle to understand how and when they apply.
Several US allies, including the UK, Japan and South Korea, have successfully negotiated trade arrangements with Washington, while others hope to do so in 2026. Meanwhile, the US economy has continued to show surprising strength, expanding at an annual rate of 4.3% between July and September, its fastest pace in two years. Bank of America economist Aditya Bhave described the US economy as highly resilient, though he warned that tariffs have already added up to half a percentage
