Global Economy Took Tariff Hike in Its Stride, But Stronger Headwinds Are Ahead

{embedded type='node/custom_code_html' id='117408'}Higher tariffs are now leading to weaker trade flows.The global economy appears to have taken a sharp rise in U.S. tariffs and increased uncertainty about the future of the international trading system in its stride, but faces stronger headwinds as tax rates continue to climb.As more countries release figures for economic growth that cover the second quarter of this year, a clear pattern has emerged. Those that grew rapidly in the first quarter as U.S. businesses raced to build up inventories ahead of higher tariffs slowed in the second quarter as those duties were imposed.The most salient example of that swing was Ireland, which saw its gross domestic product increase by 7.4% in the three months through March, before seeing it drop by 1% in the three months through June.A less operatic version was set out in data released Thursday by the U.K.’s statistics agency, which recorded a slowdown to 0.3% from 0.7% between the first and second quarters. Switzerland on Friday reported that growth slowed to 0.1% from 0.8%.As first halves go, the figures were quite good for both the U.K. and Switzerland. And although a number of big economies have yet to release figures for the second quarter, it seems clear that global economic growth has held up better than expected when the threat of high tariffs loomed. Japan was among the latest to publish data Friday, recording a pickup in growth during the second quarter after a slightly stronger start to the year than previously estimated.There are parts of the global economy that, so far, seem to have been little affected by either the anticipation or the fact of higher tariffs, although they may yet be. Spain recorded growth of 0.6% in the first quarter, and followed it up with 0.7% in the second. Poland’s slightly smaller economy had a similar experience.For those keeping score, the choice many countries have made in forgoing retaliation may count as a series of losses for them and a sequence of wins for the U.S. But those choices are also wins for the global economy, and for now a return to the tit-for-tat mayhem of the 1930s seems unlikely.That isn’t to say that the global economy hasn’t been harmed by President Trump’s fondness for taxes on imports. Far from it. But it will take some time before the impact of tariff increases that are already settled is clear, and it is likely that further increases in duties will add to the damage.Higher tariffs are now leading to weaker trade flows. The Netherlands Bureau for Economic Policy Analysis reckons that the volume of goods moved across national borders rose by a very rapid 1.9% in the first three months of the year, driven by U.S. businesses getting ahead of tariff rises. In April, global trade declined by 1%, and then by a further 0.9% in May. Figures for June have yet to be released, but a further drop is likely.»The full impact of recent tariff measures is still unfolding,« said Ngozi Okonjo-Iweala , director general of the World Trade Organization. »The shadow of tariff uncertainty continues to weigh heavily on business confidence, investment and supply chains.«The WTO has raised its forecast for global trade in goods this year, and now expects an expansion of 0.9%, having projected a decline of 0.2% in April. Much of that upgrade is down to the surge in U.S. imports during the first quarter, which the WTO believes will be balanced by weaker U.S. demand for goods made overseas into 2026 and beyond.The Geneva-based international trade body has little doubt that where tariffs are now will ultimately have a greater impact than the lower duties that were on the books in April. Policymakers around the world agree, and are taking action.»Going forward, the economy is expected to slow down in the second half of the year due to U.S. trade policies, both directly and indirectly,« the Bank of Thailand said after lowering borrowing costs Wednesday.Write to Paul Hannon at paul.hannon@wsj.com