Tariff Shock: How 2026 Will Reshape the Global Economy
Trump’s tariffs are reshaping trade in 2026. Discover 6 key impacts on global growth, inflation, and supply chains amid rising trade tensions worldwide.
President Trump’s favorite word is tariffs. He reminded the world of this in a “message to the nation” before Christmas.
While the world was still unwrapping the tariff “gifts” it received in the first year of his second term, he claimed they were bringing jobs, higher wages, and economic growth to the United States.
This is a subject of intense debate. What is less debated is that they have reshaped the global economy and will continue to do so until 2026.
The International Monetary Fund (IMF) says that while the “tariff shock is smaller than initially projected,” it is a key reason why it now expects global economic growth to slow to 3.1% in 2026. A year ago, it had projected 3.3% expansion for that year.
For IMF chief Kristalina Georgieva, the situation is “better than we thought, but worse than it should be.” Speaking in a recent podcast, she noted that the growth rate has fallen from the pre-Covid average of 3.7%.
“This growth is too slow to meet the aspirations of people around the world for better lives,” she said.
Other forecasts for 2026 are even more pessimistic than the IMF’s.
Yet, Maurice Obstfeld of the Peterson Institute for International Economics, also a former chief economist at the IMF, points out that the impact of tariffs on the global economy wasn’t as bad as it could have been. He says this is because “countries didn’t retaliate strongly against the US.”
Obstfeld adds: “And the one country that did retaliate strongly, which is China, forced the US to back down pretty quickly. So we certainly avoided a trade catastrophe.”
However, even after five rounds of trade talks, the world’s two largest economies have more tariffs and other trade restrictions in place against each other than when Trump took office for his second term. The tariffs have increased costs and heightened uncertainty for many businesses, making it difficult to plan and invest for the future.
Despite the resilience seen so far, according to Obstfeld, "these difficulties and uncertainties take their toll over time," for example, through reduced efficiency. Some of the damage from the tariffs has been mitigated by low interest rates, a weaker dollar, businesses finding clever ways to circumvent them, and, crucially, the numerous exemptions in place.
Software Services
 |
All-in-one casino solution ready to launch — talk to our experts now |
This may help explain why the UN trade agency UNCTAD is estimating that the value of global trade increased by 7% last year, exceeding $35 trillion (£26 trillion).
However, Obstfeld says the loopholes in the US tariffs are a double-edged sword. "The exemptions mean the tariffs are effectively lower, but they also create a great deal of uncertainty about how you qualify for them."
Countries like the UK, South Korea, and Japan have managed to navigate these difficulties and have struck trade deals with Trump. Other countries hope to do so during 2026.
While some economists have questioned the strength of the current US growth, it expanded by 4.3% between July and September, the fastest annual growth in two years.
"This is a very, very strong economy, and I don't see any reason why it shouldn't continue," says Aditya Bhave, a senior economist at Bank of America.
He believes the tariffs have added 0.3% to 0.5% to US inflation, which stood at 2.7% in November, but "we probably haven't seen the full effect yet." This matters because the US economy is driven by consumer spending, and, according to the IMF, it accounts for 26% of the global economy.
The pressure of the cost of living is still a problem for people in many parts of the world, but there are also some positive signs for them. In the Eurozone, inflation has stabilized and is now running at 2.1%. But in the UK, it's 3.2%, which, like in the US, is well above the central banks' 2% target.
Other major influences on the global economy this year could include renegotiations of the US-Mexico-Canada Agreement (USMCA) trade deal, which Trump signed during his first term.
Meanwhile, EU member states have to vote on whether to approve a South American trade deal that was signed more than a year ago.
And in the US, much depends on the Supreme Court's ruling on the legality of Trump's tariffs.
Oil is a crucial input into the global economy, and Wall Street bank Goldman Sachs expects the benchmark Brent crude price to fall by around 8% this year to approximately $56 a barrel.
This forecast is based on robust production in the US and Russia, rather than on President Trump's intervention in Venezuela, which is unlikely to bring more oil onto the global market in the short term.
Since oil is used for energy and transportation, a further downward pressure on prices could come from the resumption of global shipping through the Red Sea. A week before Christmas, shipping company Maersk sent a container ship through this route for the first time in almost two years.
Attacks by Houthi rebels based in Yemen, linked to the Gaza war, meant that major shipping companies had begun avoiding the route. Instead, they took the longer and more expensive route around southern Africa.
Maersk says that while this was "a significant step forward, we are not yet in a position to set a date for any potential major network changes in the trans-Suez corridor."
One of the most important destinations for container ships is China. This is where they pick up the toys, electronics, clothing, and other goods that the country manufactures for the rest of the world.
Software Services
|
Turn your casino idea into a live platform — start your journey today |
However, Beijing's trade relations with the US continue to cast a shadow over the global economy.
The latest available data shows that the value of goods traded between the world's two largest economies fell for the third consecutive year in 2025.
Unlike a year earlier, President Xi's 2026 New Year's message made no mention of these tensions, or of the numerous domestic economic pressures.
However, he predicted that the world's second-largest economy would reach a historic size of $20 trillion this year, and said that China is "ready to work with all countries to advance world peace and development." Tariffs, US sourcing of rare earth metals, and Chinese access to high-end American computer chips have dominated discussions between the two sides, but many other issues will also need to be addressed when Xi hosts Trump in April, according to James Zimmerman, president of the American Chamber of Commerce in China.
“A lot hinges on that [meeting],” he says. “Our expectations are quite low.” But he adds that it is “very, very important” that dialogue continues, even if results take time.
“Beijing wants a level playing field globally. They feel that in some areas the environment has been too restrictive for Chinese companies. Part of that is an overemphasis on security concerns.”
On the other hand, Zimmerman says US concerns also include “how China manages its manufacturing output.” “Overcapacity is an issue that is affecting many different economies.”
He points out that China has demonstrated its strength in producing consumer goods, but it needs to show that it can adapt when demand falls, “so that we don’t have a situation where there’s massive dumping of consumer goods around the world.”
According to research from Dutch bank ING, reliance on cheap Chinese imports is growing in Europe.
This is something the EU is considering cracking down on in the coming months.
In the US, restricting the influx of foreign goods is a key part of Trump’s trade policy. His trade representative, Jamison Greer, recently wrote that re-industrialization and “increasing the share of manufacturing in our economy” was in America’s national interest.
Hinting that tariffs would continue, he argued that new investments in making cars, ships, and pharmaceuticals in the US would not happen without them.
However, since Trump’s second term began, the number of Americans employed in manufacturing jobs has fallen slightly to just under 12.7 million. Obstfeld says the U.S. economy continued to grow despite the tariffs because of "strong consumer spending by people who wanted to spend their money anyway," and massive investments in AI that have driven stock markets to record highs.
Some of Trump's key policy goals, such as creating new manufacturing jobs, have still not been achieved, Obstfeld says: "I don't think the tariff policy or the discussion around it is going to end anytime soon."
Thank you for reading this content.
Thank you for reading this content.
What's Your Reaction?
Like
0
Dislike
0
Love
0
Funny
0
Angry
0
Sad
0
Wow
0
