Organization for Economic Cooperation and Development

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Trump’s Tariffs Will Drag Down the Global Economy, OECD Says

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Economic growth will slow this year and next as the trade war hampers development in the United States and around the world, the Organization for Economic Cooperation and Development said.President Trump’s trade war is expected to slow growth in the world’s leading economies, including the United States, this year and in the years to come, unless world leaders can resolve their differences over trade.The Organization for Economic Cooperation and Development slashed its outlook for global output to 2.9 percent this year, from 3.3 percent in 2024, the organization said in its economic report released on Tuesday.Economic growth in the United States is expected to be particularly weak, the organization said, rising 1.6 percent this year, a drop from the 2.2 percent projected in March, and 1.5 percent in 2026, down from its previous estimate of 1.6 percent. The U.S. economy grew 2.8 percent in 2024.“Through to the end of 2024, the global economy showed real resilience,” said Mathias Cormann, the organization’s secretary general. “But the global economic environment has become significantly more challenging since.”In the first three months of the year, economic growth in the countries monitored by the organization, which is based in Paris, “dropped abruptly” to 0.1 percent from the last three months of 2024, which is “the slowest rate of growth since the peak of the Covid-19 pandemic some five years ago,” Mr. Cormann said.Since taking office, Mr. Trump has imposed tariffs, then halted them for several weeks, then reinstated some, in the hopes of winning new trade deals from once-close allies like Canada, Mexico and the European Union, as well as longtime rivals like China.The lack of certainty coming from that on-again, off-again strategy, combined with frequent changes in how high the tariffs will eventually be, has roiled markets and disrupted the flow of goods and services around the world. From January to March, many companies rushed goods to the United States, hoping to avoid the higher tariffs, many of which are now set to take effect in July.Even if the Trump administration increases tariffs on most of America’s trading partners by just 10 percent, it would shave 1.6 percent off economic growth in the country over two years, the report said. Growth on a global scale would contract nearly a full percentage point in the same period.Further pressure is coming from the need for leading economies, such as those in the European Union, to increase military spending while also investing in the transition to a green economy, the report said.The economies of the 20 countries using the common euro currency are projected to grow 1 percent in 2025 and 1.2 percent in 2026, in line with the O.E.C.D. forecast from March. China’s economy is expected to see 4.7 percent growth this year and 4.3 percent in 2026, down 0.1 percentage points from the organization’s spring projection.Economists in the organization urged countries to reach agreements on trade and to increase investment to revive economic growth.“Our key recommendation, to all governments, is to engage with each other to address issues in a global trading system cooperatively,” Mr. Cormann said. More

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    How Omicron Could Knock Economic Recovery Off Track

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    The latest zigzag in the pandemic has already curtailed travel, but its broader impact on growth and inflation isn’t likely to be known for several weeks.LONDON — This week, Marisha Wallace finally had to admit that her planned five-day ski holiday in Switzerland in mid-December was not salvageable: The Swiss government’s sudden decision to impose a 10-day quarantine on some international travelers meant she wouldn’t be able to leave her hotel or return home to London on her scheduled flight.“It’s the way of the world right now,” said Ms. Wallace, an actress and a singer. “You can’t plan anymore.”That provisional state, amplified across the world, has left the still-fragile economy in a state of suspense as spiking coronavirus infections and the new variant Omicron have popped up around the globe.“There’s no way to know how bad it will get,” said Ángel Talavera, head of European economics at Oxford Economics.The forecasting firm has sketched out three scenarios, including one that predicts no discernible effect on economic growth and one severe enough to slash next year’s in half. It will take several weeks before there is more clarity, Oxford concluded.The current round of restrictions has already reduced travel and dampened consumer confidence. A virulent, vaccine-resistant strain could send the economy into a tailspin again, while a mild one could leave health care systems unburdened and allow the recovery to get back on track.As a report released Wednesday from the Organization for Economic Cooperation and Development showed, although growth has been uneven, the world economy this year bounced back more quickly and strongly than had been anticipated. The report, compiled largely before the latest coronavirus news, nevertheless warned that growth was projected to slow: in the eurozone, to 4.3 percent next year from 5.2 percent in 2021; and in the United States, to 3.7 percent in 2022 from 5.6 percent.The organization characterized its outlook as “cautiously optimistic.” But it reiterated how much economic fortunes are inextricably tied to the coronavirus: “The economic policy priority is to get people vaccinated,” the report concluded.Travelers from South Africa being tested at the Amsterdam airport on Tuesday.Remko De Waal/Anp/Agence France-Presse — Getty ImagesIndeed, Omicron’s threat to the recovery is just the latest in a series of zigzags that the world economy has endured since the coronavirus began its march across continents last year. Hopes that an ebbing pandemic would permit daily life and commerce to return to normal have been repeatedly frustrated by the virus.Even before this latest variant was discovered, a fourth wave of infections transformed Europe into a Covid hot spot and prompted new restrictions like lockdowns in the Netherlands and Austria.During earlier outbreaks, trillions in government assistance helped quickly resuscitate the struggling U.S. and European economies. It also brought some unexpected side effects. Combined with pent-up demand, that support helped produce a shortage of labor and materials and rising inflation.Given how much debt was racked up in the past 18 months, such aid is unlikely to recur even with a sharp downturn — and neither are wholesale closures. Vaccines provide some protection, and many people say they are unwilling to go back into hibernation.People and business alike have shifted into a wait-and-see mode. “A lot of things do seem like they are on hold, like labor market or overall consumption decisions,” said Nick Bunker, director of economic research for the job site Indeed.How that will affect unemployment levels and inflation rates is unclear. Jerome H. Powell, the Federal Reserve chair, indicated on Tuesday that concern about stubborn inflation was growing. The O.E.C.D. also warned that inflation could be higher and last longer than originally anticipated.Omicron’s appearance just adds to the uncertainty, Laurence Boone, the organization’s chief economist, said in an interview.The Nativity Hotel in Bethlehem. Israel on Sunday decided to close its borders to foreign tourists after the Omicron variant was detected.Hazem Bader/Agence France-Presse — Getty Images“If it’s something we can cope with, like the virus we have so far, then it may prolong disruptions of the supply chain, and inflation could take longer to sort out,” she said. But if the new variant causes wider shutdowns and plunging confidence, she added, it could reduce the spending binge and dampen rising prices.In recent days, governments have reacted with a confusing hodgepodge of stern warnings, travel bans, mask mandates and testing rules that further cloud the economic outlook. That patchwork response combined with people’s varying tolerance for risk means that, at least in the short term, the virus’s latest swerves will have a vastly different effect depending on where you are and what you do.In France, Luna Park, an annual one-month amusement fair held in the southern city of Nice and slated to open this weekend, was called off after the government suddenly requisitioned the massive warehouse where roller coasters, shooting galleries and merry-go-rounds were being set up in order to convert the space to an emergency vaccination center.“Today I find myself trying to save my company, and I’m not sure that I can,” said Serge Paillon, park’s owner. He feared he would face huge losses, including 500,000 euros (about $566,000) he had already invested in the event, as well as refunds for tickets that had been on sale for several monthsMr. Paillon furloughed 20 employees. Another 200 festival workers who were coming from around the country to manage the 60 games and rides were told to stay home.“For a year and a half, it was already a disaster,” Mr. Paillon said. “And now it’s starting again.”Israel’s decision on Saturday to shut its borders to all foreign tourists for two weeks is likely to reduce the number of tourists in Israel and the occupied territories this December by up to 40,000, or nearly 60 percent of what was expected, according to a government estimate.Wiatt F. Bowers had to cancel his trip to Tel Aviv, the fifth time in 18 months he has had to scrap a planned trip to Israel.Agnes Lopez for The New York TimesWiatt F. Bowers, an urban planner, had planned to leave Jacksonville, Fla., for Tel Aviv on Wednesday but had to cancel — the fifth time in 18 months that he had to scrap a planned trip to Israel. He will rebook, but doesn’t know when.Foreign tourism, which brought a record 4.55 million tourists to Israel in 2019, had already nearly vanished. Between March 2020 and September 2021, nonresident foreigners were barred from entering Israel — and, by extension, the occupied territories, where entry and exit are controlled by Israel.In Bethlehem, where tourism is the main industry, income consequently fell more than 50 percent, said the mayor, Anton Salman, in a phone interview.Elias al-Arja, the chief of the Arab Hotel Association, which represents about 100 Palestinian hotels in the occupied territories, said he was concerned less about the short-term effect of the sudden travel ban than about the long-term message of unpredictability it sent to potential visitors.“The disaster isn’t the groups who canceled over the next two weeks,” Mr. al-Arja said. “How can I convince people to come to the Holy Land after we promised them that you can come, but then the government closes the border?”Reluctance to travel, though, could mean an upswing in other sectors if the new variant is not as harmful as people fear. Jessica Moulton, a senior partner at McKinsey & Company in London, said previous spending patterns during the pandemic showed that some money people would otherwise use for travel would instead be spent on dining.She estimated that the roughly $40 billion that British consumers saved on travel last summer was used for shopping and eating out.At the moment, Ms. Moulton said, “to the extent that Omicron decreases travel, which will happen as we head into Christmas, that will benefit restaurants.”Even before the latest variant was discovered, a fourth wave of infections transformed Europe into a Covid hot spot and prompted new restrictions like lockdowns in Amsterdam.Peter Dejong/Associated PressIn Switzerland, where travelers from Britain and 22 other countries must now quarantine, the effect of the policy change on hotels was immediate.“The majority of travelers from England — between 80 to 90 percent — have already canceled,” said Andreas Züllig, head of HotellerieSuisse, the Swiss hotel association.Ms. Wallace, who canceled her trip to the Cambrian Hotel in Adelboden, was one of several people who changed their reservations at the hotel after the Swiss government made its announcement on Friday, just one week before the slopes open.“This obviously has an impact on our very important winter and Christmas business,” said Anke Lock, the Cambrian’s manager, who estimated that 20 percent of the hotel’s December bookings were at risk.For now, though, most guests are watching and waiting, Ms. Lock said: “We’ve changed the bookings from guaranteed to tentative.”Extreme uncertainty about the economy may turn out to be the only certainty.Patrick Kingsley More

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    Global Tax Overhaul Gains Steam as G20 Backs New Levies

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    The approach marks a reversal of years of economic policies that embraced low taxes as a way for countries to attract investment and fuel growth.VENICE — Global leaders on Saturday agreed to move ahead with what would be the most significant overhaul of the international tax system in decades, with finance ministers from the world’s 20 largest economies backing a proposal that would crack down on tax havens and impose new levies on large, profitable multinational companies.If enacted, the plan could reshape the global economy, altering where corporations choose to operate, who gets to tax them and the incentives that nations offer to lure investment. But major details remain to be worked out ahead of an October deadline to finalize the agreement and resistance is mounting from businesses, which could soon face higher tax bills, as well as from small, but pivotal, low-tax countries such as Ireland, which would see their economic models turned upside down.After spending the weekend huddled in the halls of an ancient Venetian naval shipyard, the top economic officials from the Group of 20 nations agreed to forge ahead. They formally threw their support behind a proposal for a global minimum tax of at least 15 percent that each country would adopt and new rules that would require large global businesses, including technology giants like Amazon and Facebook, to pay taxes in countries where their goods or services are sold, even if they have no physical presence there.“After many years of discussions and building on the progress made last year, we have achieved a historic agreement on a more stable and fairer international tax architecture,” the finance ministers said in a joint statement, or communiqué, at the conclusion of the meetings.The approach marks a reversal of years of economic policies that embraced low taxes as a way for countries to attract investment and fuel growth. Instead, countries are coalescing around the view that they must fund infrastructure, public goods and prepare for future pandemics with more fiscal firepower at their disposal, prompting a global hunt for revenue.“I see this deal as being something that’s good for all of us, because as everyone knows, for decades now, the world community, including the United States, we’ve been participating in this self-defeating international tax competition,” Treasury Secretary Janet L. Yellen said on the sidelines of the G20 summit. “I’m really hopeful that with the growing consensus that we’re on a path to a tax regime that will be fair for all of our citizens.”The agreement followed a joint statement last week that was signed by 130 countries who expressed support for a conceptual framework that has been the subject of negotiations at the Paris-based Organization for Economic Cooperation and Development for the better part of the last decade. The O.E.C.D. estimates that the proposal would raise an additional $150 billion of global tax revenue per year and move taxing rights of over $100 billion in profits to different countries.The backing of the broad framework by the finance ministers on Saturday represented a critical step forward, but officials acknowledged that the hardest part lies ahead as they try to finalize an agreement by the time the leaders of the Group of 20 nations meet in Rome in October.Among the biggest hurdles is an ongoing reluctance by low-tax jurisdictions like Ireland, Hungary and Estonia, which have refused to sign on to the pact, potentially dooming the type of overhaul that Ms. Yellen and others envision. Hungary and Estonia have raised concerns that joining the agreement might violate European Union law and Ireland, which has a tax rate of 12.5 percent, fears that it will upend its economic model, siphoning the foreign investment that has powered its economy.Absent unanimous approval among the members of the European Union, an accord would stall. Establishing a minimum tax would require an E.U. directive, and directives require backing by all 28 countries in the union. Ireland had previously hinted that they would object to or block a directive and Hungary could prove to be an even bigger hurdle given its fraught relationship with the union, which has pressed Hungary on unrelated rule-of-law and corruption issues.Prime Minister Viktor Orban of Hungary has stated that taxes are a sovereign issue and recently called a proposed global minimum corporate tax “absurd.” Hungary’s low corporate rate of 9 percent has helped it lure major European manufacturers, especially German carmakers including Mercedes and Audi.Bruno Le Maire, France’s finance minister, said on Saturday that it was important that all of Europe supports the proposal. G20 countries plan to meet with Ireland, Hungary and Estonia next week to try and address their concerns, he said.“We will discuss the point next week with the three countries that still have some doubts,” he said. “I really think the impetus given by the G20 countries is clearly a decisive one and that this breakthrough should gather all European nations together.”Policymakers also have yet to determine the exact rate that companies will pay, with the United States and France pushing to go above 15 percent, and negotiations are continuing over which firms will be subject to the tax and who will be excluded. The framework currently exempts financial services firms and extractive industries such as oil and gas, a carve-out that tax experts have suggested could open a big loophole as companies try to redefine themselves to meet the requirements for exemptions.Domestic politics could also pose hurdles for the countries that have agreed to join but need to turn that commitment into law, including in the United States, where Republican lawmakers have signaled their disapproval, saying the plan would hurt American firms. Big business interests are also warily eyeing the pact and suggesting they plan to fight anything that puts American companies at a disadvantage.“The most important thing is understanding that if there is going to be an agreement, that there cannot be an agreement that is punitive toward U.S. companies,” said Neil Bradley, the chief policy officer at the U.S. Chamber of Commerce. “And that, of course, is of great concern.”A report this month from the European Network for Economic and Fiscal Policy Research found that only 78 companies are expected to be affected by the overhaul but nearly two-thirds of them are American. The researchers estimated that the new taxes would raise $87 billion in revenue and that Apple, Microsoft, Alphabet, Intel, and Facebook would pay $28 billion of that total.At the heart of the proposal is the idea that, if countries all agree to a minimum tax, it will prevent businesses from seeking out low-tax jurisdictions for their headquarters, depriving their home countries of revenue. Ms. Yellen has criticized what she calls a “race to the bottom” in global taxation.Ms. Yellen said that she would be working in the coming months to address the concerns of countries with reservations but that the deal could still proceed even if some countries did not join. She pointed to an enforcement mechanism that would raise U.S. taxes on corporations that have headquarters in countries that continue to be tax havens but do business in America.Still, changing domestic tax laws will not be quick or easy, including in the United States, whose success in ushering in a new tax regime is being closely watched as a harbinger of whether a global overhaul can come to pass. Senior officials at the G20 meetings said that approval of the agreement within the United States was crucial to its broader acceptance.Republican lawmakers have suggested they will put up a fight.Representative Kevin Brady of Texas, the top Republican on the House Ways and Means Committee and one of the architects of the 2017 tax cuts, said that the Biden administration’s tax proposals would never pass.“Certainly in Congress there’s a great deal of skepticism,” Mr. Brady said in a telephone interview this week. “My prediction is that at the end of the day, even if an agreement is reached, what the president will bring back to Congress is an agreement that advantages foreign companies and workers over American ones.”Ms. Yellen indicated that Democrats were prepared to pass as many of the tax changes as they can through a budgetary procedure called reconciliation that would alleviate the need for Republican votes. She assured her international counterparts that the Biden administration was ready to deliver its end of the bargain and pushed back against the idea that the new tax system would harm American workers.“For the United States, it’s going to be a fundamental shift in how we choose to compete in the world economy,” Ms. Yellen said. “Not a competition based on rock-bottom tax rates, but rather on the skills of our work force, our ability to innovate and our fundamental talents.”Policymakers continue to grapple with what the global minimum tax rate will be and what exactly will be subject to the tax.A separate proposal calls for an additional tax on the largest and most profitable multinational enterprises, those with profit margins of at least 10 percent. Officials want to apply that tax to at least 20 percent of profit exceeding that 10 percent margin for those companies, but continue to debate how the proceeds would be divided among countries around the world. Developing economies are pushing to ensure that they will get their fair share.Mr. Bradley, of the Chamber, said that the details of a final agreement would determine how punitive it would be for companies. Representatives from Google and Facebook have been in touch with senior Treasury officials as the process has played out.American businesses are also worried about being put at a disadvantage by a 21 percent tax that President Biden has proposed on their overseas profits, if their foreign competitors are only paying 15 percent. The Biden administration also wants to raise the domestic corporate tax rate from 21 percent to 28 percent. Democrats in Congress are moving forward with legislation to make those changes to the tax code this year.“If a U.S. company is trying to compete globally with a significantly higher tax burden because of this significantly higher minimum tax on its operations, that’s a competitive issue for being able to be successful,” said Barbara Angus, a global tax policy leader at Ernst & Young.Washington and Europe also remain at odds over how to tax digital giants like Google and Amazon. At the G20 summit, finance ministers expressed optimism that such obstacles could be overcome. In his closing news conference after the deal was reached, Daniele Franco, Italy’s finance minister, hailed the agreement as historic and called on the countries that had yet to join to reconsider.“To accept global rules is, for each country, difficult. Each country has to be prepared to compromise,” Mr. Franco said. “To have worldwide rules for taxing multinationals, for taxing the profits of big companies is a major change, is a major achievement.”Liz Alderman More

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    U.S. Backs Global Minimum Tax of at Least 15% to Curb Profit Shifting Overseas

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    The Biden administration wants other countries to back a minimum tax as part of its plan to raise the U.S. corporate tax rate to 28 percent from 21 percent.The Biden administration proposed a global tax on multinational corporations of at least 15 percent in the latest round of international tax negotiations, Treasury Department officials said on Thursday, as the U.S. looks to reach a deal with countries that fear hiking their rates will deter investment. More