President Trump is using tariffs both as a negotiating tactic to extract concessions from other economies, and in an attempt to fundamentally reshape the global trading and geopolitical order. These dual aims make predicting which tariffs will stick difficult.

The threat and then quick removal of tariffs on Canada and Mexico underlines the transactional element to Trump’s tariff rhetoric. But higher US tariffs on China are likely to stick and increase further still. And a global reciprocal tariff is a clear risk. All this will mean US inflation stays above the 2% target this year. 

The US Federal Reserve will likely keep interest rates on hold over the first half of the year. We are still expecting two rate cuts later in 2025, although there are clear scenarios in which the Fed can’t cut any further from here.

Policy easing in China helped its economy achieve the government’s 5%-growth target last year. But real estate headwinds and upcoming trade measures mean we are forecasting growth to slow to 4.6% in 2025.

We expect central banks in Europe to continue easing monetary policy. The European Central Bank will likely cut rates at least four times this year, down to 2%. A potential US-EU trade war could lead to even more easing.

Meanwhile, we think the Bank of Japan will hike interest rates again later this year, amid firming wage growth and as inflation stabilises around target.