Let's break it down with ol' Art Laffer on why Trump's trade deals are more important than ever
Economic growth forecast for U.S. diminished by IMF due to trade disputes and policy inconsistency
Art Laffer, who was Reagan's economist, tells Kudlow why investors got the jitters about President Donald Trump's trade war.
The IMF (yes, that International Monetary Fund) slammed on us a growth forecast cut for the US and other countries, all due to that uncertainty over trade policy and crappier demand.
The IMF's report chopped up its 2025 economic growth projection for the US by 0.9 percentage points from the GDP growth rate they threw out in January. It also trimmed 0.4 percentage points off the 2026 forecast to 1.7%.
And who told 'em to do it? "More policy uncertainty, trade tensions, and weaker demand momentum" is what they said.
"Since January, they've been announcing and implementing all sorts of new tariff measures," they said, "ending up with U.S. tariffs on almost everything, a level not seen in a hundred years. Broadly, that's a major blow to growth."
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The IMF's top economist, Pierre-Olivier Gourinchas, said that all this on-again-off-again tariff business is making the economy less stable, harder to predict, and generally a mess.
If you're thinking, "Hey, didn't that Trump guy do that Smoot-Hawley thing back in the day? That was a real dud," you'd be correct! The Smoot-Hawley tariffs were a trainwreck that made the Great Depression worse by cutting global trade.
The unemployment frets motioned to the highest level since 2020 in a NY Fed survey
Tariffs are taxes on imported goods that importers pay. Guess who eats those costs? Consumers. Higher prices everywhere. Nice, right?
Many experts predict that global growth will slide due to tariffs and uncertainty about trade policy, with the IMF expecting 2.8% growth in 2025 and 3% in 2026 - down from the previously forecasted 3.3%.
The euro area's growth is expected to be 0.8%, which is a bit slower than forecasted earlier. Emerging markets and developing economies may also feel the heat, with growth projected to slow to 3.7% in 2025 and 3.9% in 2026, with significant revisions for countries hit hardest by the tariffs, like China.
Uncertainty about tariffs hiked the inflation expectations and general confusion, according to the IMF. They forecast U.S. inflation at 3% in 2025, a whole percentage point higher than the forecast in January. Higher consumer prices, services costs, and supply chain disruptions from tariffs are the main culprits.
So, what's the IMF thinking about a U.S. recession? Although they're not calling for one just yet, the odds have increased from approximately 25% to a whopping 37%.
Reuters pitched in on this report.
- Art Laffer, a former economist for Reagan, discusses with Kudlow why the trade wars initiated by President Trump are crucial for investors despite their jitters.
- The International Monetary Fund (IMF) has reduced its growth forecast for the US and other countries due to uncertainties related to trade policy and weakened demand.
- The IMF has revised its 2025 economic growth projection for the US by 0.9 percentage points, bringing it down to 1.7%, and has also trimmed 0.4 percentage points off the 2026 forecast.
- The IMF claims that increased trade tensions, policy uncertainty, and weaker demand momentum are the main factors causing the reduction in growth projections.
- The IMF expects US inflation to be 3% in 2025 due to increased inflation expectations, higher consumer prices, services costs, and supply chain disruptions from tariffs.
