Global economy strained by renewed trade uncertainty

Trade tensions dominated the World Economic Forum in Davos, underscoring the fragile state of the global economy as leaders grapple with slowing growth, uneven inflation and rising geopolitical risk. Renewed tariff threats from the United States and warnings against protectionism from China overshadowed discussions on investment, productivity and global cooperation at the start of 2026.

US President Donald Trump’s appearance was marked by controversy over Greenland and associated tariff threats against several European allies. While framed in geopolitical terms, European officials warned the rhetoric carried clear economic risks, arguing that linking trade measures to strategic disputes could undermine business confidence and delay cross-border investment. Executives said markets remain highly sensitive to policy signals after years of trade volatility, with uncertainty weighing on capital spending and supply chains.

European leaders used the forum to stress the importance of predictable trade relations and a rules-based economic order. Several cautioned that any escalation in tariffs would further pressure already modest growth prospects across advanced economies, where high interest rates and weak productivity continue to constrain expansion. Officials also discussed contingency plans should trade tensions translate into concrete measures affecting exports and industrial output.

China sought to position itself as a defender of globalisation. Vice-Premier He Lifeng warned that unilateralism and protectionism threaten global growth, particularly for emerging markets dependent on open trade and stable capital flows. He argued that slowing growth and elevated global debt levels make multilateral cooperation more urgent, urging renewed commitment to established international frameworks.

The broader economic backdrop remains challenging. While inflation has eased in many economies, growth momentum is weakening and geopolitical risk premiums are rising. Business leaders highlighted energy transition, digital infrastructure and supply-chain resilience as priorities, but said progress depends on a more stable and predictable policy environment.

As Davos concludes, the dominant economic message is one of vulnerability. With confidence fragile and growth exposed to policy shocks, further trade escalation risks amplifying downside pressures. Whether global leaders can translate dialogue into stability will be critical for the economic outlook in the months ahead.

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