Former President Donald Trump proposed tariffs that will forever change the U.S. economy. According to one group of analysts, expect to see these tariff rates explode, approaching highs not seen since possibly around 1910. Earlier this month, Fitch Ratings warned of a missile-like increase in U.S. tariffs. The rate would jump from just 2.5% last year to a shocking 22%. This unprecedented action will immediately burden American taxpayers with a whopping tax liability. It is projected to cost about $660 billion per year, making it one of the biggest tax hikes ever proposed in modern history.
Not only are the proposed tariffs misguided to protect domestic consumers, they would light a match to serious inflationary pressures. Analysts expect prices to rise sharply, contributing an additional 2% to the Consumer Price Index, which is a key measure of inflation in the United States. With almost all goods coming into the country covered by these tariffs, the risk for severe economic backlash is significant.
Economic Consequences of Tariff Implementation
The effects of these new tariffs go well outside U.S. borders. Many analysts warn that the tariffs will provoke a backlash from trading partners, leading to retaliatory measures that could further destabilize international trade relations. Increased anxieties from the conflicts would be enough to raise concerns around a coming worldwide recession.
The U.S. economy was already facing a 40% chance of slipping into recession prior to Trump’s announcement, according to JPMorgan analysts. The imposition of such high biting tariffs would be sure to further darken this trade outlook. Make no mistake, investors are increasingly concerned that these tariffs constitute a self-inflicted wound. They worry that this might set back U.S. economic growth over the long-term.
“Damage to the US economy will increase the longer the tariffs are in place and may be exacerbated by retaliatory measures.” – Joshua Bolten, Business Roundtable CEO
The financial markets’ reaction has been both immediate and brutal. On Thurs. the U.S. dollar likewise slumped to a fresh seven month low. Conversely, the yield on the 10-year Treasury note reached its lowest point during that span. Futures for major stock indices reflected the prevailing uncertainty: Dow futures plummeted by 1,300 points, or 3.1%, while the broader S&P 500 index prepared for a 3.8% decline, its worst day since the inflation crisis in 2022.
Market Reaction and Investor Sentiment
The tech-laden Nasdaq was headed for heavy losses, on track to plunge 4.6% at market open. This sharp decline exemplifies the deep panic lurking in investor sentiment. Second, they’re becoming more alarmed at the economic havoc that these highly-unusual tariffs will cause.
Olu Sonola, head of U.S. economic research at Fitch Ratings, emphasized the magnitude of this policy shift:
“This is a game changer, not only for the US economy but for the global economy.”
The unprecedented level of uncertainty cast by these tariffs is causing many forecasters to pull back on their predictions. Sonola noted:
“You can throw most forecasts out the door if this tariff rate stays on for an extended period of time.”
With inflation already a pressing concern, JPMorgan analysts remarked on the substantial impact these tariffs would have on consumer prices.
“The impact on inflation will be substantial.” – JPMorgan analysts
Future Implications for Trade and Growth
As talks surrounding new tariffs go on, key industry figures are expressing their concerns about the repercussions. Joshua Bolten, CEO of Business Roundtable, recently sounded the alarm. Universal tariffs ranging from 10% to 50%, he claimed, would wreak havoc on American manufacturers, workers, families, and exporters.
“Universal tariffs ranging from 10-50% run the risk of causing major harm to American manufacturers, workers, families and exporters.” – Joshua Bolten