INTERNATIONAL
A step back from the brink for the global economy
Filepic shows US Sec. of the Treasury Scott Bessent, US Trade Representative Jamieson Greer, China's International Trade Representative and Vice Minister of Commerce Li Chenggang and Chinese Vice Premier He Lifeng, prepare for trade talks in Geneva.
THE global economy remains fraught with uncertainty following the dramatic trade policy moves made by the US in early April. However, there has since been a palpable easing of tensions.
AI Brief
- The US and China agreed to reduce tariffs for 90 days, easing trade tensions and calming global markets.
- This pause may boost global economic confidence, but uncertainty and instability still threaten long-term recovery.
- Global growth forecasts have been downgraded, with the IMF projecting 2.8 pct growth in 2025 and sharper slowdowns for the US, China, and others.
A particularly reassuring move back in the direction of the status quo ante was made on 12 May, when the US and China announced they had reached an agreement to reduce tariffs from previously eye-watering levels by 115 percentage points, for at least 90 days. Under the deal, a tariff of 30% will now apply on Chinese exports to the US, with a 10% tariff on goods going in the other direction.
The US-China agreement followed an earlier pausing of many of the tariffs that the US had announced for other countries. Markets breathed a sigh of relief in response to each hiatus, indicating a growing confidence that the rupture with the previous trading order might not be as extensive as had been feared.
Nevertheless, much remains unclear – at least until pauses elapse, and decisions are needed about whether to extend them.
If the current, calmer hiatus were to become the new status quo it would be counted as a major boost for the global economy. However, relief would inevitably be tempered by three facts: economic uncertainty remains extraordinarily high; policy and political trajectories have become much less stable; and powerful actors continue to push for major changes to structural underpinnings of the global economy that they deem unfair. There is still a bumpy road ahead.
Uncertainty as the only real certainty
The easing of US-China trade tensions is likely to lead to a softening of bearish forecasts for the global economy, as prospects recede for worst-case scenarios. Since early April, economists have struggled to produce projections amid unprecedented uncertainty, though most have been pointing in a decidedly gloomy direction.
One of the most closely watched forecasts is produced by the IMF, in its World Economic Outlook. The latest edition, published on 22 April, projected that global growth will slow to 2.8% this year, a significant downward revision from the previous 3.3% estimate. Other major institutions echoed this downbeat view; UNCTAD projected a global slowdown to 2.3%, while the WTO said that global trade volumes were on course to contract this year.
Unsurprisingly, the sharpest country-level downward revisions from the IMF were for those most closely caught up in the trade-related turmoil. The US growth forecast for 2025 was cut from 2.7% to 1.8%, while China’s was revised down from 4.6% to 4%. Canada’s growth outlook was revised down by half a percentage point, to 1.4%, while Mexico saw a particularly steep revision – down 1.7 points to a projected contraction of 0.3%.
All of these countries are likely to enjoy some respite as a result of the pausing of many of the threatened tariffs. However, while financial markets may have bounced back, repairing other economic damage may be a slower process. The US recorded an annualized GDP decline of 0.3% in the first three months of this year, and both consumer-sentiment and business expectations have slumped. A recent McKinsey survey found that more than two-thirds of executives anticipated a recession scenario.
