- New report from IMF predicts falloff in U.S. economic growth, rising inflation amid tariff impacts.
- Tariffs have raised tensions among trade partners along with "high policy uncertainty."
- Projections suggest new U.S. tariff revenues could help make inroads on national debt.
New global projections released by the International Monetary Fund on Tuesday cite trade tensions and high policy uncertainty among the primary drivers behind a major downgrade to expected economic growth and a significant uptick in future inflation.
“In the United States, demand was already softening before the recent policy announcements, reflecting greater policy uncertainty,” the IMF wrote in an executive summary of the report. “Under our April 2 reference forecast, we have lowered our U.S. growth estimate for this year to 1.8 percent. That’s 0.9 percentage point lower than January, and tariffs account for 0.4 percentage point of that reduction. We also raised our US inflation forecast by about 1 percentage point, up from 2 percent.”
While the reference version of the IMF report only included data up to April 2, the day President Donald Trump announced sweeping new trade levies on dozens of U.S. trading partners, addendums were added that accounted for subsequent announcements of tariff pauses.
“We include a model-based forecast incorporating announcements made after April 4,” the executive summary reads. “Over that period, the United States temporarily halted most tariffs while raising those on China to prohibitive levels. This pause, even if extended indefinitely, does not materially change the global outlook compared to the reference forecast.”
The IMF is an organization of 191 member countries that works to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world, per a mission statement posted on the group’s website. The Secretary of the Treasury serves as the U.S. Governor to the IMF, and the U.S. Executive Director of the IMF is one of 24 directors who exercise voting rights over the strategic direction of the institution. The U.S. is the largest shareholder in the Fund.
What’s going on with tariffs
Earlier this month, Trump abruptly declared a 90-day pause on dozens of country-specific levies outlined on April 2 but kept a separate, 10% blanket tariff in place. The sole exception in Trump’s declared pause on reciprocal fees was China, which instead saw a tariff increase, originally communicated as a lift to 125% but was later corrected to 145%.
Trump singled out China in his Truth Social post announcing the tariff pause on April 9.
“At some point, hopefully in the near future, China will realize that the days of ripping off the U.S.A., and other Countries, is no longer sustainable or acceptable,” Trump wrote.
A new tariff wrinkle arose on Wednesday following reports the president was considering reducing China’s trade levy to de-escalate a brewing trade war.
While no official announcement has yet been made, one senior White House official said the China tariffs were likely to come down to between roughly 50% and 65%, according to a report from The Wall Street Journal.
Here’s where U.S. tariffs stand for the moment:
- China tariffs are at 145%, following a series of increases.
- Tariffs of 25% are in place on steel and aluminum imports, imported automobiles and goods from Canada and Mexico not covered by the United States-Mexico-Canada Agreement.
- Imports from all other countries are subject to a 10% trade levy.
A deficit silver lining
While the IMF’s latest data reflects an increasingly dismal outlook for global economies, not all the forward-looking tariff-related impacts are negative.
The IMF’s Fiscal Monitor analysis, released Wednesday, notes that new revenue streams generated by U.S. import tariffs could help make a nominal reduction to the national deficit.
The report includes a projection that the overall U.S. federal deficit will fall to 6.5% of gross domestic product this year, down from 7.3% in 2024.
The prediction included the caveat that “the magnitude of the tariff revenue increase is highly uncertain” as are the wider, and hard to predict, impacts of seismic changes to the dynamics of international trade.
One of those issues, according to a report from CNBC, is the degree to which tariffs will put downward pressure on imports into the U.S., itself dependent largely on how consumers respond to higher prices. This varies widely across products, IMF analysts noted.