How tariff disruption will continue reshaping the global economy in 2026

President Trump’s favourite word is tariffs. He reminded the world of that in his pre-Christmas “address to the nation”.

With the world still unwrapping the tariffs “gift” from the first year of his second term in office, he said they were bringing jobs, higher wages and economic growth to the US.

That is hotly contested. What is less debatable is that they’ve refashioned the global economy, and will continue to do so into 2026.

The International Monetary Fund (IMF) says that although “the tariff shock is smaller than originally announced”, it is a key reason why it now expects the rate of global economic growth to slow to 3.1% in 2026. A year ago, it predicted a 3.3% expansion this year.

For the head of the IMF, Kristalina Georgieva, things are “better than we feared, worse than it needs to be”. Speaking on a podcast recently she explained that growth had fallen from a pre-Covid average of 3.7%.

“This growth is too slow to meet the aspirations of people around the world for better lives,” she said.

Other forecasts for 2026 are even more pessimistic than that of the IMF.

Yet the impact of the tariffs on the global economy was not as bad as it could have been, notes Maurice Obstfeld of the Peterson Institute for International Economics, who is also a former chief economist at the IMF. He says this is the case because “countries didn’t retaliate strongly against the US”.

Obstfeld adds: “And the one country that did forcefully hit back, which is China, induced the US to back down very quickly. So we certainly avoided a trade disaster.”

However, after five rounds of trade talks, the world’s two biggest economies still have more tariffs and other trade restrictions in place against each other than when Trump took office for the second time.

The tariffs have pushed up costs for many businesses and increased uncertainty, which makes it harder to plan for and invest in the future.

Despite the resilience seen so far, “these frictions and uncertainties take their toll over time”, such as through efficiency loses, according to Obstfeld.

Some of the damage of tariffs has been mitigated by lower interest rates, a fall in the value of the dollar, businesses finding clever ways around them, and, crucially, the many exemptions they contain.

This may help explain why the UN trade agency UNCTAD is forecasting that the value of global trade grew 7% last year to reach more than $35tn (£26tn).

Yet Obstfeld says the loopholes in US tariffs are a double-edged sword. “The exemptions mean lower tariffs in practice, but they also introduce a lot of uncertainty about how you get them.”

Countries including the UK, South Korea and Japan have managed to navigate those mysteries and agree trade deals with Trump. Others will hope they can do so during 2026.