Navigating turbulent waters amid trade uncertainty

The new U.S. administration swept into office on a wave of promises to reshape global economic and trade relationships, prioritizing America’s interests. As a flood of new tariffs and trade measures were announced, altered or paused, global markets, businesses and trade partners have had to ride out the swells and changing currents. With the policy outlook unclear, exporters are preparing for turbulence ahead.​

Impact of U.S. tariffs on global trade

In our spring Global Economic Outlook (GEO), EDC Economics accounted for heightened uncertainty. Our baseline forecast includes the announced 25% tariff on global steel and aluminum imports into the U.S., 25% tariff on imports from Mexico, an additional 20% of cumulative tariffs against China, and the 25% tariff on Canadian imports (with energy products tariffed at 10%). Retaliatory tariffs from China and Canada are also included, assuming tariffs on Canada and Mexico remain until the end of 2026.​ Our forecast is based on policy developments before March 7.

With these key considerations accounted for, EDC Economics expects the global economy to grow by 2.6% in 2025 and 3% in 2026. The U.S. economy benefits from supportive domestic economic conditions, including a stable labour market. However, recent data suggests consumer spending is slowing and confidence is wavering due to unpredictable economic policies. Companies are increasingly concerned about tariff changes and the potential repeal of key industrial policies that supported investment plans. Increased volatility and tariffs will cap U.S. economic growth at 1.7% in 2025 and 1.9% in 2026.​

The U.S. Federal Reserve has taken a more restrained approach than its peers, given the unique position of the U.S. economy and the inflationary impacts of proposed policies. We expect a modest slowing of the U.S. economy, with only one rate cut forecast, followed by four cuts in 2026. 

Canadian economic outlook amid trade uncertainty

The Canadian economy entered 2025 stronger than anticipated, but consumer sentiment has slumped since the new U.S. administration took office. Business investment is struggling under trade uncertainty, threatening plans. While a surge in exports to avoid tariffs will boost Canada’s growth early in the year, the impact of tariffs will offset this throughout 2025. We expect the Canadian economy to grow by 0.8% in 2025 and 1% in 2026. ​

The Bank of Canada has aggressively cut interest rates, reducing its policy rate by 2.25 percentage points from mid-2024 to March 2025. We forecast three more rate cuts this year to support the economy amid tariffs and higher prices.

The Canadian dollar will face increasing pressure due to divergent interest rate outlooks in Canada and the U.S. and the impact of tariffs. We forecast the loonie to average 0.66 cents per U.S. dollar in 2025, with significant volatility, and 0.68 cents per U.S. dollar in 2026.

Europe’s outlook will be impacted by ongoing uncertainty and global economic headwinds. Germany and France will struggle to generate significant growth. In France, political disorder will constrain reforms aimed at improving the fiscal and growth outlook. We forecast growth of 0.8% in 2025 and 1.4% in 2026. In Germany, the transition to a sustainable growth model for industry in the wake of lost access to cheap Russian energy continues. We forecast growth of 0.4% in 2025 and 1.2% in 2026, with upside risk from an historic defence and infrastructure spending package.​

China faces a challenging outlook with an additional 20% increase in tariffs, on top of those previously levied by the Biden and first Trump administrations. The domestic economy is recovering from the property market downturn and related deflationary impacts. We expect China to grow by 4.7% in 2025 and 4.1% in 2026.​

The weak global picture in 2025 will weigh on demand and prices for key commodities. We forecast West Texas Intermediate oil prices to average around US$67 due to soft demand and spare capacity.​

Bottom line: Steering through economic challenges​

Navigating turbulent waters is challenging for all. EDC Economics’ Global Economic Outlook calls for a choppy few years ahead. Markets, businesses and trading partners must strengthen their resolve, focus on resilience and be prepared to change course to adapt to hazardous conditions.

This week, a very special thanks to Ross Prusakowski, director of our Country & Sector Intelligence team.

As always, at EDC Economics, we value your feedback. If you have ideas for topics that you’d like us to explore, please email us at economics@edc.ca and we’ll do our best to cover them.