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Trump reaffirms tariffs as cornerstone of economic policy
In a pre-Christmas national address, U.S. President Donald Trump reiterated his commitment to tariffs, calling them a driver of job creation, wage growth, and economic expansion. The remarks come as his administration's trade policies continue to influence global markets well into his second term.
Global growth slows amid trade tensions
The International Monetary Fund (IMF) has revised its 2026 global growth forecast downward to 3.1%, citing tariffs as a key factor. The projection marks a decline from the 3.3% expansion predicted a year earlier and falls below the pre-pandemic average of 3.7%. IMF Managing Director Kristalina Georgieva described the outlook as "better than feared, worse than it needs to be," warning that sluggish growth undermines efforts to improve living standards worldwide.
Economic resilience masks underlying strains
Despite the drag from trade barriers, the global economy has avoided a full-blown crisis. Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics and former IMF chief economist, noted that countries largely refrained from escalating retaliatory measures. "China's forceful response prompted the U.S. to back down quickly, averting a trade disaster," he said. Still, tariffs between the world's two largest economies remain higher than when Trump re-entered office in 2025.
Businesses have adapted through exemptions, supply chain adjustments, and a weaker U.S. dollar, but Obstfeld cautioned that uncertainty and inefficiencies accumulate over time. The United Nations Conference on Trade and Development (UNCTAD) reported a 7% rise in global trade value last year, reaching $35 trillion, though the gains were uneven.
U.S. economy defies expectations, but risks linger
The U.S. posted 4.3% annualized growth in the third quarter of 2025, its strongest performance in two years. Bank of America economist Aditya Bhave attributed the resilience to robust consumer spending, which accounts for 26% of the global economy. However, tariffs have added 0.3% to 0.5% to U.S. inflation, which stood at 2.7% in November-above the Federal Reserve's 2% target.
Manufacturing employment has dipped slightly since Trump's second term began, with the sector employing just under 12.7 million workers. Trade Representative Jamieson Greer argued that tariffs were essential to re-industrialization, citing new investments in automotive, shipbuilding, and pharmaceutical sectors. Critics, however, question the long-term sustainability of the approach.
Key trade battles loom in 2026
Several high-stakes trade developments could further reshape the economic landscape this year. The U.S., Mexico, and Canada are set to renegotiate the USMCA trade deal, while the European Union will vote on a stalled South American trade agreement. Meanwhile, the U.S. Supreme Court is expected to rule on the legality of Trump's tariffs, a decision with far-reaching implications.
Oil prices are projected to decline by 8% in 2026, according to Goldman Sachs, due to strong production in the U.S. and Russia. The resumption of shipping through the Red Sea-disrupted by Houthi attacks linked to the Gaza conflict-could also ease global trade costs. Maersk, a major shipping firm, resumed partial operations in late December but cautioned that a full return to pre-crisis routes remains uncertain.
U.S.-China tensions persist despite dialogue
The value of goods traded between the U.S. and China fell for the third consecutive year in 2025, reflecting deepening economic frictions. In his New Year's address, Chinese President Xi Jinping projected the country's economy would surpass $20 trillion in 2026 but avoided direct references to trade disputes or domestic challenges.
James Zimmerman, chairman of the American Chamber of Commerce in China, described the upcoming April summit between Xi and Trump as "very, very important," though expectations for breakthroughs are low. "Beijing seeks fair competition globally but feels constrained by security-driven restrictions," he said. U.S. concerns include China's manufacturing overcapacity, which risks flooding global markets with cheap exports.
The EU is also tightening scrutiny of Chinese imports, with Dutch bank ING reporting increased reliance on low-cost goods from Beijing. Meanwhile, Trump's focus on reducing foreign imports remains central to his trade agenda, with Greer framing it as vital to national economic interests.
Tariffs here to stay, experts say
Despite mixed results, Obstfeld predicted tariffs would remain a fixture of U.S. policy. "The economy has grown in spite of them, not because of them," he said, pointing to resilient consumer demand and AI-driven market gains. With manufacturing job growth still elusive, the debate over tariffs' efficacy is unlikely to fade in 2026.
