Trump tosses first social media hand grenade

Here we go again. This week President-elect Donald Trump lobbed his first social media hand grenade since the election – threatening to impose a 25% tariff on Canada and Mexico if both countries didn’t do more to stem the flow of drugs and illegal migrants across their borders. China was threatened with a 10% tariff – above and beyond the expected 60% tariff – if it didn’t do more to control illegal shipments of fentanyl.

We have now incorporated into our forecasts the assumptions that Trump imposes a 10% universal tariff and a 60% tariff on Chinese imports and curbs net immigration – all in the second quarter of next year. Our annual GDP growth forecasts are now 2.0% in 2025 and 1.8% in 2026, down from 2.2% and 2.9%. The tariffs also trigger a resurgence in price inflation next year to around 3% although, since they amount to a step change in the price level, inflation should drop back in the second half of 2026.