We continue to refine the tariff assumptions underlying our global economic and FX outlook, and we believe most tariffs will remain in place from Q2-2025 through the remainder of our forecast horizon. As far as the assumptions, we assume a 20% tariff on China and a 10% tariff on the European Union.
• We also assume effective tariff rates of 5% on Canada and Mexico (with some goods not subject to duties), and a 5% effective rate on the rest of the world. We also assume matching tariff retaliation from foreign countries on the United States.
• Our forecast for global GDP growth in 2025 in unchanged at 2.7%, although we revised our growth forecast for the U.S., Canada and Mexico lower. Downward revisions were offset by firmer economic outlooks for China and India, while we also made large upward revisions to our medium-term growth outlook for the Eurozone on the back of prospects for enhanced fiscal spending.
• We have made select adjustments to our monetary policy outlooks at certain central banks. We see more easing from the Federal Reserve and Bank of Canada, given softer growth outlooks, while we see less monetary easing than previously from the European Central Bank and Sweden's Riksbank. Softer U.S. growth and a more dovish Fed, along with a degree of tariff fatigue, is likely to result in less U.S. dollar strength than we previously anticipated.
• While the outlook for tariff policy remains fluid, the broader contours are starting to come into focus. As a result, we have further refined our tariff assumptions this month. China and the European Union are likely to face tariffs over our entire forecast horizon, while many other countries—including Canada and Mexico—are also set to face higher tariffs from the United States. International countries are still likely to respond with matching tariffs that are likely to remain in place for the foreseeable future.
• The potential economic impact of the trade war is also becoming apparent. We have kept our 2025 global GDP forecast unchanged at 2.7% but raised our global growth outlook slightly to 2.7% for 2026. For the United States and Canada, we see slower growth and more dovish central bank monetary policy due to tariffs. At the same time, fiscal stimulus in Germany has improved the Eurozone's medium-term growth prospects and prompted a less dovish European Central Bank. Modest fiscal stimulus in China could also see a more gradual slowdown in China's economy.
• We expect an ongoing but lesser degree of U.S. dollar appreciation over our forecast horizon. The imposition of moderate tariffs and a degree of tariff fatigue could limit the extent of safe-haven support and trend U.S. dollar appreciation over the next several quarters. In addition, somewhat softer U.S. growth and a more dovish Fed could also lessen the U.S. dollar gains over the medium term, given growth, fiscal policy and monetary policy trends that in some instances are turning more supportive of foreign currencies.
The prospect of historically significant changes to U.S. tariff policy and their potential economic and financial market impact has been a dominant theme during the early months of the Trump administration. To be sure, other economic themes have emerged in recent weeks, including changes in the outlook for Federal Reserve and international central bank monetary policy, and with fiscal policy developments. As new themes present themselves, the focus on tariffs has arguably become a bit less singular. That said, U.S. tariff policy, and the international response, remains a very important influence on the overall global economic outlook. In that context, we continue to monitor tariff- related developments and refine our tariff-related assumptions. Tariff headlines continue to cross the newswires at a steady clip. Among the most notable recent developments, the tariff on imported goods from China was increased further to 20%. President Trump also imposed a 25% tariff on exports from Canada and Mexico that are out of compliance with the USMCA trade agreement. A 25% tariff on steel and aluminum also took effect in mid-March. Over the course of the month, President Trump has also signaled reciprocal tariffs and levies on USMCA compliant goods in early April, while the European Union and select global industries are targeted for levies (Figure 1).
While acknowledging that the outlook for trade policy remains fluid and uncertain, the broader contours are starting to come into clearer focus. To that point, we have further refined our assumptions and expectations for U.S. and global tariff policy. As far as our updated assumptions, from Q2-2025 through the end of our forecast horizon, we believe the 20% tariff on goods from China will remain in place and that China will retaliate with its own 20% tariff.
Over the same period, we assume a 10% effective tariff rate on goods imported from the European Union, with a similar level of retaliation from the EU on the United States. We also assume an effective tariff rate of 5% on imports from Canada and Mexico, reflecting a combination of tariff-free goods compliant with the USMCA agreement, while duties apply to other goods not in compliance with the USMCA rules of origin. We also assume matching retaliation from Canada and Mexico.
And finally, we assume the effective tariff rate on goods from all other trading partners will be 5%. Overall, we believe these assumptions strike a balanced tone, with the potential for U.S. trade and tariff policy to be either more aggressive, or more benign, than the parameters outlined above. In aggregate, we believe this tariff mix will bring the U.S. effective tariff rate on all imports up to a little over 8%, a material escalation in U.S. tariff policy.
