OECD warns tariffs will hit U.S. economic growth hard

The full impact of U.S. tariff hikes has yet to hit, according to a new report from the Organization for Economic Cooperation and Development (OECD).

The group said Tuesday that U.S. growth will ease to 1.8% this year and 1.5% in 2026 , both down from 2.8% in 2024. Still, those projections represent a very modest upgrade from the OECD’s June forecast , which estimated 2025 growth at just 1.6%. Globally, the economy is now seen expanding 3.2% this year, also better than projections from three months ago. But the OECD forecasts a slowdown in growth to 2.9% in 2026.

The weaker outlook for 2026 reflects the lagging bite of tariffs imposed by President Donald Trump. The OECD estimated the effective U.S. tariff rate climbed to 19.5% by the end of August, the highest level since 1933.

So far, the OECD said, many companies have absorbed much of the shock by taking hits to their profit margins and using up existing inventories. But that cushion won’t last, the report said. “The impacts of higher tariff rates are yet to be fully felt in the U.S. economy,” the OECD warned .

That means the U.S. is sliding toward a stagflationary mix of slower growth and a “softening” labor market, while price pressures and inflation tick up again. Tariffs are expected to increase import costs and push inflation to an average of 3% in 2026, up from 2.7% this year.

The OECD also sees the Federal Reserve cutting interest rates again as jobs numbers weaken. That’s Wall Street’s bet, too, with prediction markets showing a majority of traders and spectators expecting rate cuts coming in October.

The OECD flagged other headwinds for the U.S., including a decline in immigration and cuts to the federal workforce. Such headwinds are likely to counteract even the growth created by the high levels of business activity and investment in AI which are now helping to prop up the economy. “Strong investment growth in high technology sectors is more than offset by higher tariff rates and a drop in net immigration,” the report said .

Looking out further, the report highlighted that governments are running out of fiscal runway. Debt and debt servicing costs are rising, which leaves countries vulnerable and unable to respond when the next shock hits. “There are downside risks,” OECD chief economist Alvaro Pereira said . “This makes it a difficult balancing act.”

Beyond the U.S., China’s economy is expected to slow as the export surges fade and fiscal support is wound down, though growth this year was revised up to 4.9%. The Euro region is projected to expand 1.2% this year but, like the U.S. and China, lose momentum through 2026.

While the OECD’s forecasts are often read as economic horoscopes, they’re best understood as data-driven conditional scenarios that tee up policy advice. Critics argue the warnings are performative, designed to push governments toward revising tariffs or reconsidering debt levels. Defenders counter that the numbers arise from incredibly detailed, transparent models, and that the policy chapters follow the forecasts, not the other way around.

Either way, OECD projections serve less as weather reports and more as roadmaps, showing where growth might go — or not go — depending on policy and, of course, policymakers.