Trump’s tariffs barrel into US economic growth, says OECD

Hello and welcome to White House Watch! Today let’s dig into:

• A downgrade for US growth

• Trade tensions with China

• Trump vs the Federalist Society

The OECD said this morning that it was slashing its growth forecast for the US, as it warned that President Donald Trump’s trade war will sap momentum from most major economies.

The global economy as a whole is heading into its weakest period of growth since the Covid-19 pandemic, but the slowdown will hit the US particularly hard, according to the OECD. The organisation predicted that US growth would slow to just 1.6 per cent this year, down from 2.8 per cent in 2024.

It also forecast that stubborn inflation would prevent the Federal Reserve from cutting interest rates until at least 2026.

The Paris-based body also trimmed its growth forecasts for China, France, India, Japan, South Africa and the UK.

“This has massive repercussions for everyone,” said Álvaro Pereira, the OECD’s chief economist. He added that countries around the globe urgently needed to strike trade deals to lower tariff barriers and avoid a “quite significant” hit to growth.

The latest assessment represents a further downgrade to the OECD’s already downbeat March interim forecasts, which came before Trump’s “liberation day” tariffs announcement.

The OECD’s gloomy assessment comes after the dollar slid towards a three-year low yesterday and US government bonds came under pressure, as weak manufacturing data and growing warnings over the sustainability of the country’s debt pile unnerved investors. Futures trading is pointing to a lower open on Wall Street this morning.

An ISM survey of purchasing managers in the manufacturing sector came in weaker than expected at 48.5 for May, indicating a contraction. Economists said the reading, the fourth consecutive fall in the index, was the latest sign that Trump’s unpredictable trade war was weighing on the world’s largest economy.

“The confusion of trade policies is making it near-impossible for supply managers to source goods efficiently,” said Joe Brusuelas, chief economist at tax and consulting firm RSM US. “That tells me that we may run into bottlenecks in terms of production, leading to shortages.”

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Trump’s judicial appointees are struggling to balance fealty to the White House with commitment to the US Constitution, as the president continues to push the boundaries of his power. [Free to read]

In his first term, Trump joined forces with Leonard Leo, co-chair of the powerful Federalist Society, to stock the federal judiciary with 226 conservatives, including three members of the US Supreme Court.

But after two Republican appointees to the Court of International Trade joined with a Democrat to block his signature tariffs last Thursday, Trump said Leo was “a bad person, who in his own way, probably hates America”.

“I am so disappointed in The Federalist Society because of the bad advice they gave me on numerous Judicial Nominations,” he wrote on Truth Social.

Trump’s tirade is the latest public expression of a growing rift within the conservative legal movement. Maga loyalists are demanding that judges toe the line, while traditional conservatives are pushing back against presidential measures that they find unconstitutional.

When judges rule against him, Trump “sees both those judges and the Constitution as obstacles to his political success”, said Paul Butler, professor at Georgetown Law. “Leo and the Federalist Society support the Constitution in a way that Trump does not.”

If Trump’s fury towards dissenting judges deepens the split with Leo, the conservative activist may have to choose between staying true to his judicial philosophy and retaining his influence in the White House.

“To Trump, loyalty über alles [above all],” said Barbara Perry, professor of presidential studies at the University of Virginia’s Miller Center. “This may be a rift that’s not mendable in Trump’s mind.”

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