US-China relations improve, yet industrial recession remains likely

For the first time this year, our global industrial production outlook for 2025 has been upgraded. The de-escalation in US-China trade tensions marks a step in the right direction. However, the outlook for industrial activity remains well below our expectations in March, prior to the “Liberation Day” announcements. Indeed, we still anticipate an industrial recession in Q2 and Q3.

What you will learn:

• Firms have frontloaded activity in Q1 in an attempt to shield themselves from future tariffs. This will unwind from Q2. Uncertainty remains a major constraint in the US and will continue to dampen business and household sentiment.
• Tariffs on US imports will directly contribute to higher inflation. Rising prices of imported consumer goods will erode real disposable incomes.
• Sector-specific impacts of the trade war are uneven. US industries that are more reliant on these imported inputs are especially exposed to the increase in costs.
• Lower US imports will reduce export demand for major trading partners. This is a key reason for weaker industrial outlooks in China, Japan, Canada, Mexico, and Korea.
• US tariffs will be a drag on European trade and investment, prolonging the industrial downturn in Europe. Structural challenges from increased competition with China will persist, but fiscal stimulus and the EU’s rearmament will support a pick-up in industrial production in 2027–2033.