How tariffs will continue to change the global economy in 2026

President Trump’s favorite word is tariffs. He reminded the world of that in his pre-Christmas “speech of the nation”.

As the world opened the “gift” of tariffs from the first year of his second term in office, he said they brought jobs, higher wages and growth to the US economy.

That was hotly contested. What is less debatable is that they have changed the global economy, and will continue to do so until 2026.

The International Monetary Fund (IMF) says that although “the tariff shock is smaller than originally announced”, it is a key reason why the world economic growth rate is now expected. will slow to 3.1% in 2026. A year ago, it predicted a 3.3% expansion this year.

For the head of the IMF, Kristalina Georgieva, the goods “better than we feared, worse than it should be.” Speaking on a podcast recently he explained that growth has fallen from a pre-Covid average of 3.7%.

“This growth is too slow to meet the aspirations of people around the world for a better life,” he said.

Some predictions for 2026 are even more pessimistic than the IMF.

Yet the impact of the tariffs on the global economy is not as bad as it could be, said Maurice Obstfeld of the Peterson Institute for International Economics, who is also a chief economist at the IMF. He says this is the case because “countries have not retaliated strongly against the US”.

Obstfeld added: “And the one country that has come back strongly, which is China, is prompting the US to withdraw immediately.

However, after five rounds of trade talks, the world’s two largest economies are still additional tariffs and other trade restrictions in place against each other than when Trump took office for the second time.

Tariffs drive up costs for many businesses and increase uncertainty, making it difficult to plan and invest in the future.

Despite the stability seen so far, “these frictions and uncertainties suffer over time”, as does the loss of efficiency, according to Obstfeld.

Some of the harms of the tariffs are mitigated by lower interest rates, a decrease in the value of the dollar, businesses looking for better ways around them, and, especially, the many exemptions it contains.

This may help explain why the UN trade agency UNCTAD predicts that the value of global trade grew 7% last year to reach. more than $35tn (£26tn).

Yet Obstfeld says loopholes in US tariffs are a double-edged sword. “Exceptions mean lower tariffs in practice, but they also introduce a lot of uncertainty about how you can get them.”

Countries including the UK, South Korea and Japan was able to navigate the mysteries and agree trade deals with Trump. Some hope they can do it in time for 2026.

While some economists expressed skepticism about how strong US growth will be, between July and September expanded by 4.3%, the strongest annual growth in two years.

“It’s a very strong economy, and I don’t see why that won’t continue going forward,” said Aditya Bhave, a senior economist at Bank of America.

He thinks the tariffs have added between 0.3% and 0.5% to US inflation, which in November was 2.7%, but “maybe we haven’t seen the full impact yet”. That goods provided to the US economy is driven by consumer spending, and it accounts for 26% of the global economy, according to the IMF.

Cost of living pressures are still a problem for people in many parts of the world, but there are some encouraging signs for them. In the eurozone, inflation has stabilized and is currently running at 2.1%. But in the UK it is 3.2%, which like the US, remains above the 2% target of central banks.

Other major influences on the global economy this year may include the renegotiation of US Mexico Canada Agreement (USMCA) trade deal signed by Trump during his first term in office.

Meanwhile, EU member states must vote on whether to approve a South American trade deal which was signed more than a year ago.

And back in the US, many are riding on the Supreme Court’s decision on the legality of Trump’s tariffs.

An important input to the world economy is oil, and the Wall Street bank Goldman Sachs expects the price of the benchmark Brent Crude to fall by almost 8% this year to around $56 per barrel.

That forecast is based on strong US and Russian production, rather than Trump’s intervention in Venezuela, which is unlikely to bring more oil to world markets in the short term.

With oil used for energy and transportation, another downward pressure on prices could be the continuation of global shipping through the Red Sea. A week before Christmas, shipping giant Maersk sent a container ship through it for the first time in almost two years.

Attacks by Houthi rebels based in Yemen, involved in the war in Gaza, mean major shipping companies already avoided. Instead they took the longer and more expensive route around southern Africa.

Maersk said that although this was “an important step forward, we are not at a point where we can set a date for any potential network changes back to the trans-Suez corridor”.

One of the most important destinations for container ships is China. This is where they pick up toys, electronics, clothing and other items made in the country for the rest of the world.

However, Beijing’s trade relationship with the US continues to overshadow the global economy.

The latest available data suggests the value of goods traded in the world’s two largest economies fell for the third year in a row in 2025.

Unlike a year ago, there was not a single nod to strains, or many domestic economic pressures in 2026 by President Xi new year message.

However, he predicted that the world’s second largest economy will reach the landmark size of $20tn this year, and said that China is “ready to work with all countries to promote world peace and development”.

Tariffs, US sourcing of rare earth metals, and Chinese access to high-end US computer chips have dominated discussions between the two sides, but there are many other issues to be resolved if Xi hosted Trump in April, according to James Zimmerman who heads the American Chamber of Commerce in China.

“There’s a lot riding on (the meeting),” he said. “Our expectations are low.” But he added that it is “very, very important” to have a continuous dialogue even if it takes time to deliver results.

“Beijing wants a fair shake to be able to compete globally. They feel that the environment in some areas is too restrictive for Chinese companies.

On the other hand, Zimmerman said US concerns include “how China manages its manufacturing output”. “Overcapacity is an issue that affects many different economies.”

He explained that China has shown its strength in the production of consumer products, but it must show that it can make changes when the demand for them falls, “so that there is not a situation where there is a lot of dumping of consumer products around the world”.

In Europe, the continent’s reliance on cheap Chinese imports is growing, according to research from the Dutch bank ING.

This is something that the EU is looking for to suppress the in the coming months.

Back in the US, limiting the entry of foreign-made products is a key part of Trump’s trade policy. His Trade Representative Jamieson Greer recently wrote that re-industrialization and increasing “the manufacturing side of our economy” is in US national interest.

In a sign of the tariffs remaining in place, he argued that new investments in the manufacturing of cars, ships and pharmaceuticals in the US would not happen without them.

However, since Trump’s second term began, the number of Americans in manufacturing jobs has fallen slightly just under 12.7 million.

Obstfeld said that despite the tariffs the US economy continues to grow because of “resilient consumers who still want to spend their money”, and the massive investment in AI that has sent stock markets to record highs.

With some of Trump’s main policy goals, such as creating new manufacturing jobs, still to be achieved Obstfeld added: “I don’t think tariffs will go away as a matter of policy or of discussion.”