The escalating tariff war between the United States and its trading partners is hitting North America the hardest, with Canada, Mexico, and the U.S. seeing slowed economic growth. Meanwhile, China stands to benefit from a boost to GDP and lower inflation, according to recent data.
The Organisation for Economic Co-operation and Development’s latest interim economic outlook, released Monday, revised its projections for North America. U.S. economic growth is expected to slow from 2.2 per cent in 2025 to 1.6 per cent in 2026. Canada’s economy is forecast to grow just 0.7 per cent in both years. Conversely, Mexico is expected to contract by 1.3 per cent in 2025 and 0.6 per cent in 2026.
“The global economy has shown some real resilience, with growth remaining steady and inflation moving downwards. However, some signs of weakness have emerged, driven by heightened policy uncertainty,” OECD Secretary-General Mathias Cormann said.
Canada’s inflation rate is projected to be 3.1 per cent in 2025, placing it between Mexico and the United States and in the middle of the pack of OECD countries. China will see the lowest inflation rate, at 0.6 per cent and 1.4 per cent in 2025 and 2026, respectively.
China’s real GDP is projected to grow 4.8 per cent in 2025 before slowing to 4.4 per cent in 2026, according to the OECD.
The OECD report highlighted that the proliferation of tariffs would hurt global business investment and drive inflation higher, forcing central banks to maintain elevated interest rates longer than previously anticipated.
“Increasing trade restrictions will contribute to higher costs both for production and consumption,” Cormann said.
The organization warned that an additional 10-percentage-point rise in bilateral tariffs could cut global GDP by 0.3 per cent within three years and drive inflation up by 0.4 percentage points annually. The OECD warned that this could worsen amid an escalated trade war.
A 10 per cent rise in U.S. tariffs on imports from all countries would see Mexico hit the hardest, with the country suffering a 1.3 per cent GDP hit in three years compared to the baseline. Following them would be the United States, with a 0.72 per cent drop in GDP, and Canada, with a 0.64 per cent decrease. China would be hit the least, seeing a fall of only 0.1 per cent in GDP.
In retaliation to new U.S. tariffs on Canadian steel and aluminum, the Liberal government imposed 25 per cent tariffs on an additional $29.8 billion worth of U.S. imports, bringing the total amount of counter-tariffs to nearly $60 billion.
“With these tariffs, the U.S. administration is needlessly disrupting an incredibly successful trading partnership,” said former Finance Minister Dominic LeBlanc. “It is a completely unwarranted and unjustified move that will raise costs for Americans and Canadians alike.”
LeBlanc warned that additional retaliatory measures could be imposed if the U.S. escalates trade restrictions further.
A survey by the Canadian Federation of Independent Business found that 62 per cent of small businesses are feeling the impact of the trade war, particularly in the manufacturing, wholesale, and transportation sectors.
“To say that small businesses are feeling worried is an understatement,” CFIB Chief Economist Simon Gaudreault said. “The ever-changing news developments and the constant on-again, off-again tariff threats are exhausting and just very bad for the economy, investment, and long-term business planning.”
CFIB is calling on the federal government to recall Parliament immediately to provide financial relief to affected businesses. The organization also urged Ottawa to return any revenue collected from retaliatory tariffs to impacted businesses.
Despite Canada’s pushback, Trump remains firm in his stance, rejecting any suggestion of lifting tariffs. Trump signalled to Ontario Premier Doug Ford and former Finance Minister Dominic Leblanc that he considers Canada an unfair beneficiary of past trade agreements.
“We’ve been ripped off for years, and we’re not going to be ripped off anymore,” Trump said.
Canada’s real GDP per capita has already suffered since former Prime Minister Justin Trudeau took office.
An analysis of real GDP growth over the last ten years from the International Monetary Fund showed Canada’s real GDP grew a measly 0.5 per cent over the last ten years. The country in second last place was Germany, at 4.7 per cent. The United States took the cake, with a real GDP growth of 20.7 per cent over the last decade.
The OECD urged governments to mitigate trade war fallout by maintaining monetary vigilance, ensuring fiscal sustainability, and enacting structural reforms to boost productivity. The organization called for diplomatic solutions to prevent further economic fragmentation and protect global trade stability.