What to expect in 2026?
Oscar Ugarteche[1], OBz|ELA[2]
The beginning of 2026 was marked by uncertainty regarding the impact of the United States' unilateral tariffs on the so-called "rebel states." This approach disregarded all current international trade agreements. Later, on 20 February 2026, the Supreme Court rejected the President’s actions, highlighting the conflict between national policy and international obligations.
President Trump's Liberation Day speech emphasised ending decades of perceived unfairness against US taxpayers. He promised rapid prosperity by using large sums to reduce taxes and national debt. His claims were based on the National Trade Estimates Report for 2025, which defined trade barriers broadly to include regulations and non-trade measures that distort competition. His team aimed to target barriers in adversary countries. The speech conflated tariffs with final sale prices, incorrectly citing value-added taxes and tariff levels. Statements like "None of our companies (automakers) are allowed to enter other countries" were misleading or false.
Trump's solution to vague definitions in trade barriers was to apply general tariffs to address America's external deficit and stimulate economic restructuring. However, this move blurred the distinction between domestic fiscal issues and attempts to return to an older growth model reminiscent of the 1950s and 1960s. The main argument is that these policies are inadequately targeted and disconnected from the stated economic goals.
These tariffs were imposed arbitrarily and unilaterally—damaging US credibility, dismantling a trade system built over decades, and signalling a sharp break from the US-led free trade policy of the post-1980s era. The key argument is that these actions reflect a shift in US identity from leader of global free trade to self-portrayed victim and undermine international cooperation.
Although the US stock market grew, the overall US economy and society suffered losses. Average GDP growth remained at 2.8% since 2000, and the post-COVID years exposed structural weaknesses. The argument is that stock market gains do not reflect broader economic health. Rising deficits and high debt costs further weaken the economy, and there is a disconnect between financial indices and real economic conditions.
War has become the hallmark of US foreign policy in 2026, continuing a post-2014 trend. Despite this focus, defence sector growth remains small. War spurs temporary price rises in conflict zones, affecting oil markets and global inflation. Private investment remains weak, and consumption grows at the economic average. In 2026, private consumption slows further amid higher public-sector unemployment.
Asia's high growth continues, led by China's stable 5%. South America benefits from this link, maintaining robust growth. In contrast, Mexico and Central America are hampered by slow US growth and migration issues, with remittances delayed as migrants await better conditions.
Mexico is reassessing its industrialisation and development policies, recognising that there is no clear link between exports and GDP growth. Argentina, Chile, Peru, Bolivia, and Ecuador remain aligned with the US's libertarian approach. New EU free trade agreements with Mercosur, India, and Mexico signal a decline in US influence in international trade, as trade flows suggest reduced US sway not only in Asia but also in Europe and South America.
The start of a new Middle Eastern war year between Israel and the US against the people of Iran has upended the energy markets and will have an impact on global inflation rates. A long war might push oil to $130 USD/bbl, leading to U.S. consumer inflation of about 5.5%. Energy shocks affect inflation in different ways. Headline inflation rises quickly because it includes energy and food prices, while core inflation—which excludes these volatile items—may remain stable initially. Despite the Federal Reserve focusing on core inflation, prolonged increases in energy prices will eventually filter through to higher wages and business costs.
For the US, it means interest rates will not be reduced, and for the currency markets, it means upheaval. Commodity prices should rise, particularly those war-related inputs, which are positive for mineral-exporting countries and cotton exporters. Economic growth in the US will further deteriorate, and the fiscal deficit grow. The US finances the Israeli army.
The U.S. Energy Information Administration's 2025 appraisal is that around 20% of all oil consumed worldwide and more than a quarter of all oil traded by sea pass through the Hormuz Strait, now closed until the end of the war. Then, the daily cost of the war, estimated in December 2025, reflected a price of gasoline per gallon of up to 7 US$ (https://govfacts.org/policy-security/estimating-the-true-cost-of-war-with-iran/). It includes increases in food prices as transport costs rise. JP Morgan estimated price per barrel could jump from 65 USD/bbl to “$120-$130 USD/bbl. ING Financial estimated $120 USD/bbl and Goldman Sachs $100 USD/bbl.
Other consequences could affect the supply of generic drugs manufactured in India using active pharmaceutical ingredients from China. These transit through the Persian Gulf on their way to markets in Europe and the Americas. Disruptions could create shortages. Most consumer electronics are made in Asia, with inputs that transit through the Middle East by air. Iran and Turkey are major producers of pistachios, dates, and other speciality crops. In addition, grain and fertiliser shipments often pass through the region. "The timing of disruptions matters greatly for agricultural markets. During planting and harvest seasons, delays in fertiliser deliveries can affect crop yields for an entire year. Similarly, disruptions to grain shipments during key trading periods can create food shortages in importing countries." (https://govfacts.org/policy-security/estimating-the-true-cost-of-war-with-iran/)
Normally, in times of crisis, investors would likely rush to “safe haven” assets such as U.S. Treasury bonds, German government bonds, gold, and the Swiss franc. Global bonds have sold off this week, with yields rising. The relationship between bond prices and yields is inverse. Investors are betting that higher energy prices will push inflation higher, in turn raising short-term interest rates set by central banks. The outlook is now for a recessionary year in the West, with Asia growing.
