World Bank Cuts 2025 Growth Forecast to 2.3% Due to Trump's Trade Policies

President Trump's economic policies have significantly influenced the global economic landscape, with the World Bank adjusting its growth projections for both the United States and the world. The primary reason cited for the reduced outlook is the disruptions to global trade caused by President Trump’s trade policies. Global growth in 2025 is expected to fall to 2.3 percent from a 2.7-percent projection made last year. The outlook for U.S. growth fell to 1.4 percent from 1.8 percent. This represents the weakest pace for global output since 2008, not counting recessions, and the downturn is primarily attributed to new trade barriers and policy changes.

The sharp increase in tariffs and the ensuing uncertainty are contributing to a broad-based growth slowdown and deteriorating prospects in most of the world’s economies. The policy changes are translating into hesitancy among both businesses and consumers, reflected in numerous surveys in recent months. Small business uncertainty popped to an index value of 94 in the May survey from the National Federation of Independent Business. That’s off a recent high of 110 in October of last year. Small business optimism in May was above the 51-year average after seeing a huge drop in April on the heels of “reciprocal” tariffs on dozens of countries announced by the White House. Those bilateral tariffs have been paused amid ongoing trade negotiations, but a 10 percent general tariff remains in place.

The overall U.S. tariff level is now between 10 percent and 15 percent, marking the highest level in a century. That’s off a recent high of nearly 25 percent, when the U.S. and China maintained triple-digit tariffs on each other that were scaled back on May 12. The 10 percent to 15 percent tariff rate effective at the end of May was assumed to hold throughout the World Bank’s forecast, but economists flagged “notable uncertainty in this regard.” The main tariffs now in effect are a 10 percent general tariff on imports from most countries; a 30 percent tariff on imports from China; a 25 percent tariff on select imports from Canada and Mexico; 25 percent tariffs on steel and aluminum; 25 percent tariffs on most automobile imports; and a 25 percent tariff on imports of most auto parts.

Economic performance exceeded the World Bank’s expectations for 2024. The world economy grew by 2.8 percent last year, above the bank’s prediction of 2.6 percent. U.S. economic performance in 2024 also beat forecasts, rising by 2.8 percent, compared to a 2.5-percent growth prediction made last year. The current 2025 growth prediction for the U.S. of 1.4 percent is quite a bit lower than the Federal Reserve’s latest prediction of 1.8-percent growth, which the U.S. central bank made in March. President Trump’s trade war has replaced the postpandemic recovery as the dominant economic narrative.

Economists observed last year that globalization appeared to be at an “inflection point.” “Trade liberalization measures typical of the decades after 1990 are shifting towards more fundamentally protectionist and interventionist policies,” they wrote. While inflation in the U.S. has fallen back close to the target annual rate of 2 percent without a recession, disruptions to economic activity are resurfacing again, leaving behind concerns about the long-sought “soft landing” from the pandemic. “That moment has passed. The world economy today is once more running into turbulence,” World Bank economists wrote.

In 2021, inflation that had ballooned to unprecedented heights plunged from above 9% to below 3%, largely due to the Federal Reserve’s assertive interest rate adjustments and sustained tight monetary strategy. However, the Federal Reserve initially hesitated to act swiftly against the rising inflation, mirroring its current sluggishness in implementing interest rate reductions. President Trump has often criticized Federal Reserve Chairman Jerome Powell for being “consistently late” and is urging the reduction of interest rates.

Under Trump’s administration, inflation figures consistently trended below anticipated levels, with vital metrics like the Personal Consumption Expenditures (PCE) showing significant improvement. The core inflation rate reached its lowest since March 2021. Wage increases were notable, rising by 2% over the previous year. Additionally, energy prices experienced a decrease, dropping by 1% in the last month and marking a 3.5% annual decline. The data exceeded market expectations.

With a year until midterm elections, the Trump administration is dedicated to highlighting economic achievements. However, it recognizes that current aggressive tariff policies are not sustainable. Trump’s team continues to spotlight positive economic stories to sway voters, expressing concerns about economic tensions escalating.

Key conclusions from this economic landscape are: U.S. core inflation drastically reduced from above 9% to under 3% due to stringent monetary policies. The White House maintains a positive economic message, focusing on wage increases and reduced energy costs. Tensions regarding tariffs present challenges that could impact future inflation trends and interest rates.

The Trump administration is actively working to prevent tariffs from exacerbating inflationary pressures, which could boost cryptocurrencies. This approach may catalyze interest rate reductions, fostering further cryptocurrency value growth. As 2025 draws to a close, the outlook remains hopeful should major global conflicts be avoided, providing optimism for cryptocurrency investors across the board.