Global Economy Braces for Trump Tariffs to Take Full Effect in Second Half of 2025

The ripple effects of the United States' aggressive trade tariffs are expected to intensify across the global economy in the latter half of 2025, according to a recent forecast by Barclays analysts.

Investors remain focused on President Donald Trump’s trade policy, particularly the looming expiration of a grace period on his controversial "reciprocal" tariffs. These duties, which affect a wide range of trading partners, are set to be enforced more broadly early next month unless a new delay is announced.

In addition to these reciprocal tariffs, the U.S. continues to impose blanket 10% import tariffs, alongside targeted levies on key commodities such as steel and aluminium.

While the Trump administration maintains that these trade measures are designed to correct long-standing trade imbalances, bolster federal revenue, and restore domestic manufacturing, many economists caution that they could have inflationary side effects and dampen global economic growth.

Despite these concerns, recent U.S. economic indicators suggest inflation remains contained and the labour market stable. However, analysts warn that the full economic impact of the tariffs may only become visible in the second half of the year. The Federal Reserve is reportedly adopting a cautious stance, holding off on major policy shifts until the broader economic outlook becomes clearer.

In a client report, Barclays’ lead analyst Amrut Nashikkar noted that the global economy is likely to experience the delayed effects of these tariffs over the coming months. "We project moderate growth, with the U.S. avoiding a full-scale recession," the note stated. It added that the trade policies could push core inflation above 3%, potentially prompting the Fed to keep interest rates unchanged in the near term. As of May, U.S. core inflation stood at 2.8%.

Looking ahead, Barclays believes that the world economy will weather the trade war relatively well, supported by factors such as lower global interest rates, potential fiscal stimulus in Germany, and declining policy uncertainty. Their forecast anticipates 2.2% global GDP growth for 2025 (Q4 over Q4), with an acceleration to 3.1% in 2026.

On the U.S. political front, the bank expects a proposed tax-and-spending package to miss the self-imposed 4th July deadline but eventually pass before Congress recesses in August.

Against this economic backdrop, Barclays predicts that financial markets will begin to shift focus from trade and tax headlines to broader macroeconomic trends and the potential earnings boost from artificial intelligence, particularly among large-cap technology companies.

The report also expressed a bullish outlook on equities over fixed income, citing strong market momentum, supportive liquidity, and neutral investor positioning as factors that may drive stock markets higher. Sectors such as financials, health care, and mega-cap tech stocks are highlighted as areas of opportunity.

(Sources: investing.com, reuters.com, ChatGPT)