The International Monetary Fund has sounded a fresh alarm over the worsening trade war between the United States and China.
In its latest World Economic Outlook, the IMF has revised its global growth forecast downward, highlighting the growing risks posed by rising tariffs and deepening tensions between the world’s two largest economies.
According to the report, global growth is now expected to slow to 2.8 percent in 2025 and reach just 3.0 percent in 2026. These estimates are notably lower than what was projected earlier this year.
The IMF attributes this downgrade largely to the expanding tariff war, which it says is having a significant and negative impact on international trade and investment flows.
The new projections were based on information available until April 4. This means several recent tariff announcements, including those from both Washington and Beijing, are not yet reflected in the current estimates.
However, the IMF warned that if these newer tariffs remain in place and become a permanent part of the trade landscape, the economic damage—especially for the United States and China—will be much more severe in the years ahead.
IMF Chief Economist Pierre-Olivier Gourinchas expressed deep concern, stating that the world may be entering a new era, one that breaks away from the global economic model that has governed international trade for decades.
He said this shift could lead to long-lasting disruptions and greater uncertainty for both emerging and advanced economies.
The trade conflict, which began with tariff hikes by the Trump administration, has now escalated into a tit-for-tat cycle. Effective tariff rates between the US and China have climbed steeply, surpassing levels most economists consider sustainable.
The current environment is marked by unpredictable policies and reactive measures, which are straining business confidence and dampening growth prospects.
China's economy has not been spared either. The IMF has revised its growth forecasts for the country to 4 percent for both 2025 and 2026.
These are significant downgrades from earlier expectations, partly due to US tariffs that include a 34 percent “reciprocal” tax and a further 20 percent related to fentanyl enforcement. China has responded with its own set of tariffs, raising duties on American goods to 125 percent.
The United States is also facing economic pressure. The IMF lowered its forecast for US growth to 1.8 percent in 2025, and a further drop is expected in 2026.
The report cited reduced consumer demand, rising policy uncertainty, and the chilling effects of prolonged trade tension as key factors behind the slowdown.
These economic forecasts were released just as global finance leaders gathered in Washington for the IMF and World Bank Spring Meetings.
The timing added urgency to the discussions, especially as major US trade partners like Canada, Mexico, and China are all likely to suffer from the fallout of these aggressive trade policies.
Although not part of the official forecast, the IMF did issue a caution that recent tariff hikes announced after April 4 could worsen the global outlook further. If those tariffs remain in place over the long term, they could contribute to even more pronounced economic losses worldwide.
Amid all this, there are signs that policymakers are beginning to realize the need for a shift in tone. During a private meeting with investors in Washington, US Treasury Secretary Scott Bessent acknowledged that the current level of tariffs was not sustainable.
He emphasized the need for both nations to de-escalate tensions and explore diplomatic solutions.
Later in the day, President Trump also appeared to soften his stance. In a brief interaction with the media, he indicated that future trade negotiations with China would be more friendly. He assured that the final tariff levels would not remain at the current highs, hinting at the possibility of compromise.
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