A Tale of Two Forces: Tariffs and the AI Boom Test Global Economy’s Mettle
The world economy is walking a tightrope, buoyed on one side by a massive technology boom and pulled on the other by rising trade tensions. That is the core message from the latest analysis by the Organisation for Economic Co operation and Development, or OECD, which recently assessed the global outlook for the coming years.
The good news? The economy is proving more resilient than many feared. In a surprising twist, the OECD actually lifted its global growth forecast for 2025 to 3.2 percent, up from an earlier estimate. This stronger than anticipated performance in the first half of the year was driven by two key factors: a short term trade rush and significant investment in new technologies.
First, businesses around the world rushed to ship goods ahead of announced tariff hikes, a practice economists call “front loading.” This temporary boost in trade and production helped keep the gears of global industry turning.
Second, the accelerating adoption of artificial intelligence has acted as a powerful tailwind. Strong investment in AI related sectors, particularly in the United States, has injected new energy into the world’s largest economy. The OECD views AI as a unique opportunity to revitalize stagnant productivity, offering a bright spot in an otherwise cloudy forecast.
However, the temporary nature of that “front loading” means the true test for the global economy is just beginning. The Paris based organization warns that the “full effects” of escalating protectionist policies have yet to be felt.
Trade barriers are not an abstract threat; they are a concrete economic reality. The overall effective US tariff rate climbed to an estimated 19.5 percent at the end of August, a level not seen since 1933. Further increases could deal a significant blow, dampening trade, weighing on investment, and ultimately pushing up consumer prices across the board.
The OECD projects that if bilateral tariffs were to escalate further, global output could fall by roughly 0.3 percent within three years, while global inflation could rise by 0.4 percentage points annually. This would compound existing pressures on household spending worldwide.
The impact is already showing up in country specific forecasts. While the AI boom is helping the United States, its GDP growth is projected to slow considerably, falling from 2.8 percent in 2024 to 1.8 percent in 2025 and slipping further to 1.5 percent in 2026. This deceleration is primarily attributed to the effects of higher tariffs beginning to take hold.
The overall outlook suggests that the resilience shown this year will be challenged next. As the short term effect of rushing shipments fades, the drag from higher tariff rates and policy uncertainty will intensify, slowing projected global growth to 2.9 percent in 2026.
In short, the powerful push from the AI investment cycle is currently battling the structural drag of rising trade fragmentation. For now, the world economy is holding its ground, but policymakers face an urgent task: foster the benefits of innovation while working to avoid a damaging spiral of protectionism. The fate of the global expansion may well depend on which force prevails.
