Global Economy Faces Triple Threat of Tariffs, AI Bubble, and Ballooning Debt

The global economy has so far managed to weather the strongest wave of U.S. tariffs since the 1930s, supported by steady American consumer spending, corporate resilience in absorbing higher costs, and a surge in artificial intelligence investment that has energized financial markets.

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However, President Donald Trump’s latest warning of massive new tariffs on Chinese imports has reignited concerns about another economic shock adding to growing fears over ballooning government debt and potential overvaluation in technology stocks.

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These issues are expected to take center stage this week in Washington, where finance ministers and central bankers are gathering for the International Monetary Fund (IMF) and World Bank’s annual meetings. On the sidelines, the U.S.’s $20 billion aid package aimed at stabilizing Argentina’s peso and proposals to channel frozen Russian assets toward Ukraine will also be major discussion points.

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The meetings come at a delicate moment, as trade tensions between the U.S. and China intensify and political unrest grows in nations from France to Japan. When global leaders last met in Washington in April, sentiment was far gloomier. Trump’s announcement of “Liberation Day” tariffs rattled markets, raising fears of a global downturn driven by retaliatory trade measures, stubborn inflation, and weakening investment.

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Since then, the economic picture particularly in the U.S. has brightened. The nation’s GDP expanded in the second quarter at its fastest pace in nearly two years. Even after Friday’s market selloff, triggered by Trump’s renewed tariff threats, the S&P 500 remains up 32% from its April lows. The boom in artificial intelligence and the race to build out data centers have fueled both economic and market gains.

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For now, companies have managed to navigate tariff disruptions by building up inventories and accepting slimmer profit margins instead of passing on higher costs to consumers.

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“This resilience has been encouraging, but it’s unlikely to last,” warned Karen Dynan, a Harvard University economics professor and senior fellow at the Peterson Institute for International Economics. “We’re likely to see global growth slow in the coming quarters.”

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On Friday, Trump said he would impose an additional 100% tariff on Chinese goods starting November 1, though he hinted he could reconsider if Beijing backs away from restricting exports of rare earth materials.

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Bloomberg Economics forecasts global GDP growth of 3.2% for 2025 matching this year’s pace followed by a slowdown to 2.9% in 2026.

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Soaring debt levels will also dominate discussions in Washington. Global debt jumped by more than $21 trillion in the first half of the year, reaching a record $338 trillion, according to the Institute of International Finance a surge comparable to the pandemic-era borrowing spree.

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Another key topic will be the Trump administration’s push to stabilize Argentina’s fragile economy ahead of its midterm elections. The IMF already approved a new loan for Argentina in April, despite internal resistance. IMF Managing Director Kristalina Georgieva has recently been in talks with U.S. and Argentine officials about further support measures.

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The economic data paint a mixed global picture. U.S. job growth has cooled, with the manufacturing sector shedding positions for four consecutive months. In China, factory activity has declined for six straight months the longest slump since 2019. Germany’s economy shrank more than initially estimated in the second quarter, while its auto industry continues to struggle amid weak export demand.

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The World Trade Organization expects global trade growth to slow sharply next year due to the lagging effects of tariffs. It projects merchandise trade volumes to rise just 0.5% in 2026, down from 2.4% this year.

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“Global economic headwinds are intensifying,” said Frederic Neumann, chief Asia economist at HSBC Holdings Plc. “It’s unrealistic to assume that global exports can escape the impact of U.S. tariffs some payback from earlier front-loading of shipments seems unavoidable.”

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A key question now is whether higher prices will finally strain U.S. consumers a potential tipping point for the global economy. Although the tariff impact has so far been milder than feared, “another shoe may be about to drop,” according to Nathan Sheets, chief global economist at Citigroup Inc.

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“The tariffs are increasingly biting,” Sheets noted in a recent report, predicting further weakness in U.S. consumption and imports. Citi expects global growth to dip below 2% in the second half of this year before recovering to around 2.5% in 2026.

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Stephen Jen, CEO of Eurizon SLJ Capital, said the full effects of tariffs may take six to eight quarters to hit, potentially pushing U.S. growth close to zero. “Tariff shocks are being spread out in smaller, sustained waves rather than one big blow,” he explained.

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For some importers, the strain is already visible. Mike Brundidge, CEO of Seattle-based Acme Food Sales Inc., which supplies canned tuna and coconut water to major U.S. retailers, said he has so far absorbed part of the tariff impact but warned that consumers will soon feel it. “I can guarantee grocery prices are going up there’s just no avoiding it,” he said.

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Beyond trade, another looming risk is the soaring valuation of tech stocks driven by AI enthusiasm.

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“Today’s valuations are approaching those seen during the Internet boom 25 years ago,” IMF’s Georgieva said last week, alluding to the dot-com bubble of 2000. “A sharp correction could tighten financial conditions, slow global growth, and hit developing economies hardest.”

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In one scenario modeled by Oxford Economics, a U.S.-led tech slowdown could push global growth down to 2% in 2026, compared with a baseline of 2.5%. Economists are now watching the sector closely for signs of vulnerability.

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“The jury’s still out on whether this AI-driven investment surge will translate into lasting productivity gains and sustainable economic growth,” said Alexis Crow, chief economist at PwC US.

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As world leaders gather in Washington, the challenge ahead is clear: balancing optimism over technological innovation with growing economic risks from tariffs, debt, and inflated valuations. The coming months will test just how durable this global resilience really is.

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