President Donald Trump’s aggressive trade policies are already casting a long shadow over emerging market (EM) economies, with analysts cutting growth forecasts and warning of prolonged investment uncertainty and policy disruption.

“Because there are no winners in a trade war, we slashed our EM GDP growth forecasts by 0.4ppts to 3.7% in 2025 and by 0.2ppts to 3.7% in 2026. These are the single-largest downgrades we've made to our EM growth projection since the onset of the coronavirus pandemic,” said Callee Davis, senior economist at Oxford Economics in a note on April 30.

“We are already seeing the consequences of the Trump-era tariff framework returning at scale,” said Davis. “The new blanket tariffs and retaliatory measures have not only dimmed near-term growth prospects but also reduced the attractiveness of investment across key EMs.”

The main conclusion of the Oxford Economics note included:

• The punitive tariffs caused us to downgrade China's 2025 growth forecast by 0.5ppts to 4.1%. China is nevertheless more resilient than most think, partly because exports to the US were only 3% of China’s GDP. Still, the tariff hit means its growth target is no longer attainable.
• Mostly driven by China and a few other EMs (India, Thailand and Poland), we lowered our 2025 aggregate EM inflation forecast since our November 2024 baseline, which incorporated our initial take on President Donald Trump's presidency. This corresponded with reduced key policy rate expectations from our forecasters.
• However, several LatAm and Central and Eastern European countries had upward revisions to their inflation forecasts over the past few months, corresponding with a more hawkish outlook for end-2025 interest rates than a few months ago.
• Most central banks kept key policy rates on hold in March and early April, but stronger EM currencies, particularly in EM Asia, may support rate cuts in the near term.
• The Central and Eastern European economies may buck the policy-easing trend, as the disinflationary impact of lower commodity prices will be offset by the demand spillovers from the large German fiscal stimulus. We expect cuts this year to be gradual.

China in the front line

China, although less dependent on exports to the US, faces a substantial economic blow from the trade war. Oxford Economics lowered China’s 2025 growth forecast by 0.5 percentage points to 4.1%, citing deteriorating trade flows and policy inertia.

“The idea that China can weather a 150% effective tariff rate without consequence is overly optimistic,” said Davis. “Even with fiscal buffers, the damage to confidence and demand is already evident. We believe the 5% growth target is out of reach.”

US is its own victim

As commentators repeatedly point out, tariffs are a tax on the US consumer, not the exporting country, and that is going to negatively affect US growth this year.

Analysts are anticipating a supply shock in the coming months as the imposition of tariffs take several months to work their way through to cancelled cargo orders. However, sometime in May or June US shop shelves will start to empty as supplies from overseas, and China in particular, start to dry up.

Oxford Economics lowered its 2025 GDP growth forecast for the US by 0.8ppts to 1.2% since March. It also lowered the growth forecast for 2026 by 1ppt to 1.6%.

“This reflects substantial, albeit scaled back, US tariff hikes. Although a recession in the US is not our baseline, we think that any additional increases in the effective tariff rate would push the US into recession. Aside from the demand-driven shock of tariffs, the surge in policy uncertainty is weighing heavily on business investment,” said Davis. “However, we still expect the economy to improve next year, supported by a positive fiscal impulse and the fading effects of tariffs on inflation and real disposable income. We expect uncertainty about fiscal policy to rise in H2.”

Inflation in focus

While several Asian and Central and Eastern European countries saw lower inflation forecasts on the back of reduced demand and stronger currencies, Latin American and some CEE economies registered upward revisions. This trend, according to Davis, points to “diverging monetary policy paths and growing tension between inflation control and growth support.”

“Core price inflation has trended downward on a three-month average basis. Meanwhile, food price inflation increased for the Asia 7 – ­China, India, Indonesia, Thailand, Malaysia, the Philippines and Vietnam – and the LatAm 4 – Brazil, Mexico, Colombia and Chile – but eased for the CEE 3 – Poland, Romania and Hungary,” says Davis.

Some central banks, including those in India and the Philippines, have begun rate-cutting cycles, enabled by softer inflation and exchange rate recovery. However, Davis noted that “countries like Brazil and Hungary remain constrained by currency volatility and localised inflationary pressures linked to supply-chain costs and imported goods.”

Trade and retaliation

The new tariffs, which Oxford Economics assumes will remain in place until the end of 2026, are already reshaping trade assumptions. While China has responded with proportional retaliation, most EMs are expected to avoid escalation and pursue negotiation channels instead.

“Retaliation is unlikely to be broad-based,” said Davis. “Emerging markets are opting for damage control, seeking exemptions or revised trade terms rather than entering a full-blown tariff war.”

Oil price fall brings some relief

Oil-importing countries stand to benefit from declining global commodity prices, with Brent crude forecast to average $67.50 per barrel this year. However, exporters such as Nigeria and Saudi Arabia may face growing fiscal and balance-of-payment pressure.

FX rebound short-lived

Despite currency rebounds across many EMs, Oxford Economics warned that the rebound in EM currencies thanks to a weaker dollar could reverse in the second half of 2025 as markets react to tighter US fiscal policy and a potentially stronger dollar. However, most major EM currencies are still weaker than they were before Trump's election victory.

“Much will depend on the Federal Reserve’s stance and US domestic demand,” Davis said. “A shift toward a firmer dollar could erode recent EM currency gains and reignite inflation risks.”

Oxford Economics says a steady decline in the EM hawkishness index suggests easing room is narrowing as inflation expectations moderate. Still, policy flexibility remains uneven, especially in countries with lingering fiscal vulnerabilities and volatile capital flows.

“Ultimately, EMs are being forced into reactive mode,” Davis said. “Whether through tighter trade policy, delayed investment or defensive monetary stances, the global fallout of Trump’s tariff strategy is already well under way.”