Trump tariff turbulence threatens global industrial landscape

A whirlwind of announcements and threats by the Trump administration to impose tariffs against allied and hostile countries alike has led us to downgrade our global industrial growth forecast for 2025 by 0.5 percentage points since our last update just three months ago.

The President has moved swiftly to advance a trade agenda that goes beyond what was promised in the campaign and goes quite a bit further than what we had assumed in our Q4 2024 industry update. This will have a major impact on global industrial prospects.

This change is not just a minor adjustment: it reflects the broader impact of global tariffs, persistent policy uncertainty, and the expectation of higher interest rates for an extended period. While not all of this downgrade can be pinned solely on the President’s trade agenda, it certainly plays a substantial role.

The next pinch point for global industry will come on 2 April—the so-called “Liberation Day”—when the exemptions on tariffs from Canada and Mexico are due to expire. Donald Trump has also promised additional tariff announcements on this date, including potential reciprocal tariffs. But more recently, he has said he may give “a lot” of tariff breaks. We will be monitoring the situation closely.

Tariff assumptions since the US election

Forecast vintage	Assumptions (cumulative)
Q4 2024	Targeted tariffs in strategic or politically-favoured sectors (metals, cars, Chinese industrials, Canadian dairy)
February 2025	10% blanket tariffs on China, 10% blanket tariffs on the EU
Current	25% blanket tariffs on Mexico & Canada [10% for Canadian oil, 0% for automotive], additional 10% blanket tariff on China

Source: Oxford Economics

The impact of tariffs on US industry

The largest impacts of the tariffs will be felt in North America. The US itself is somewhat insulated from the worst effects of tariffs. Thanks to its large domestic market, it is less interconnected with its North American trade partners. However, the real challenge lies in the impact that a prolonged period of economic uncertainty will have on business investment.

Canada and Mexico to enter an industrial recession

Unfortunately, the US’s neighbours to the north and south aren’t as fortunate. Canada and Mexico are heavily reliant on the US as an export market. The broad tariffs set are likely to push both countries into an industrial recession.

While there are some differences across the two countries, there are also key similarities. Sectors like mechanical engineering, electricals, and furniture are expected to be at the forefront of this downturn. Canada’s manufacturing output is projected to shrink by 1.9% in 2025, while Mexico will see a decline of 0.8%. However, we anticipate a recovery to take hold by mid- to end-2026, assuming that tariffs are largely removed under a renegotiated USMCA trade agreement.

Turning our gaze to Europe, we expect the US to impose a blanket 10% tariff on all goods imported from the EU. While European export exposure to the US is relatively small compared to its North American neighbours, the tariffs add a further headwind to a region that has already endured a two-year industrial recession. Pharmaceuticals, high-tech, and machinery have the biggest dependence on the US export market.

We still expect that European industry will begin its recovery later this year, driven primarily by a rebound in domestic demand, a normalisation of inventories, and a partial recovery for energy-intensive industries amid lower energy prices. Yet, we have become more pessimistic about European industrial competitiveness and have therefore pushed back the speed and magnitude of the recovery:  we now expect industrial value-added growth of just 0.6% in 2025 and 2.1% in 2026.

Growth in Europe’s defence spending will provide some boost in a few targeted sectors such as aerospace and fabricated metal products. However, these are relatively small segments, and this tailwind to growth will be most strongly felt in 2027–28.

External pressures mount on Chinese industry

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