Targets for future tariffs include the European Union (EU), autos, pharmaceuticals, and semiconductors—as well as the “reciprocal” tariffs that Trump aides are calculating based on various barriers to entry for U.S. goods overseas. “Whatever they tariff us, we tariff them,” is how the president described that part of his plan to Congress.

Although Canada and Mexico received temporary relief from the duties on some goods, the tariff wave is cresting amid already-clear signals of slower growth and higher inflation. Consumer spending fell by the most in nearly four years in January, and consumer confidence has weakened. Factory activity fell back last month, while a gauge of prices paid for materials surged to the highest since June 2022.

Will ‘Rebalancing the Economy’ Lead to Recession?

Analysts caution against reading too much into a single month of data, especially one skewed by severe weather. Last Monday, the Atlanta Federal Reserve’s GDPNow real-time forecasting tool predicted a 2.8 percent first-quarter contraction, but it’s an outlier. Most indicators aren’t pointing to a severe downturn. Goldman Sachs Group Inc. CEO David Solomon told a conference in Sydney last Tuesday that there’s a “very small” chance that the U.S. economy will tip into a recession.

Trump and his team say a drastic overhaul is needed to rebuild U.S. industries hollowed out by decades of trade deficits and to bring decent-paying manufacturing jobs back to the country. Treasury Secretary Scott Bessent pushed back on concerns about the tariff effect and the global market slide that it triggered. Stocks fell around the world last week, and the S&P 500 almost erased its post-election rally

“We are going to rebalance the economy,” Bessent told Fox News last Tuesday. “Over the medium term, which is what we’re focused on, it’s a focus on Main Street. Wall Street’s done great, Wall Street can continue to do fine, but we have a focus on small business and consumers.” Both groups will feel the impact of the new taxes on some $1.5 trillion in U.S. imports, more than two-fifths of the total.

As of Tuesday, the average U.S. tariff rate stood at the highest level since the 1940s. That alone is enough to raise the possibility of a period of stagflation, or slow growth and high inflation, according to Maeva Cousin and Rana Sajedi of Bloomberg Economics. “These tariffs will act as a negative supply shock for the U.S. economy,” they wrote.

Calculations based on models used by the Federal Reserve during the first Trump administration suggest the latest tariff shock could cut 1.3 percent off U.S. GDP and lift core inflation by 0.8 percent. Economists at Yale’s Budget Lab predicted a growth shock of about half that size in 2025 but warned of scars that could persist for years. Even after production shifts and supply chains reorganize, Trump’s latest tariffs and retaliation by others will shave 0.4 percent off long-run GDP, they wrote—“the equivalent of the U.S. economy being permanently smaller by $80 billion to $110 billion annually.”

Economists Predict Household Costs Will Rise $1,300 a Year

Retailers like Target and Best Buy said last week that they expect slower sales because of the tariffs. Shoppers in Target’s stores, already very cautious because of the “lingering tariff conversation that they hear about almost every night on the news,” can expect to see price hikes over the next couple of days,” CEO Brian Cornell told CNBC. He pointed in particular to produce like strawberries, avocados, and bananas, for which the company “depends on Mexico for a significant amount of supply” during the winter.

Almost half of U.S. fruit and vegetable imports, including more than 90 percent of avocados, come from south of the border. The new tariffs will hit partygoers and clothes-shoppers too. Four in five beers that enter the United States from abroad come from Mexico, while China accounts for nearly 30 percent of imported apparel.

This all adds up to a hefty bill. “If all of the announced and threatened tariffs are actually implemented and remain in place, then the typical American family will need to shell out as much as $1,300 more a year to purchase the same goods they did last year,” said Mark Zandi, chief economist at Moody’s Analytics. Those same families recently got whacked by a post-Covid surge in the cost of living—which helped Trump get elected, most pundits reckon—and there are clear worries that it’s bubbling up again. Inflation expectations over the coming year are the highest since 2023, and one longer-run survey points to a multi-decade high.

Beyond the direct hit on consumer wallets, there are risks to industrial production and manufacturing jobs too. Both declined in 2019 during Trump’s first-term trade war. The U.S. auto industry, some 2.5 percent of the economy, is profoundly exposed, as giants like Ford Motor Co. are loudly warning. Its supply chains have grown deeply entwined with Canada and Mexico over decades. Even a short-term disruption could wipe a percentage point from annualized GDP growth, according to Citigroup Inc.—and separate car tariffs may be coming. Trump told lawmakers that he’d spoken to the heads of the three biggest U.S. automakers before his speech on Tuesday.

Meanwhile, the mere threat of steel and aluminum duties slated to take effect this Wednesday has already led to a surge in domestic prices that’s raising costs for companies like Calder Brothers Corp. The Greenville, South Carolina–based firm makes paving machines used for driveways and parking lots, which retail at an average $200,000. On top of the recent steel-price increase, it’s getting squeezed by tariffs on components sourced overseas, like gearboxes and hydraulic valves. The company is mulling an unusual midyear price increase, said Glen Calder, its president.

“These tariffs really punish the small U.S. manufacturer,” he said. “There’s a lot of concern over what’s going to happen to pricing on a lot of things.”

Although tariffs are top-of-mind for U.S. growth watchers right now, plenty of other administration policies are also raising red flags. The crackdown on illegal migrants, already under way, threatens to leave gaps in the workforce that won’t be easy to fill quickly—especially in industries like meatpacking. Deportations carried out so far by the Trump administration likely won’t hurt the economy too much. But Goldman Sachs economists say a broader immigration slowdown, with fewer net arrivals per year, could strip as much as 40 basis points (bps) off potential growth compared with recent years.

DOGE Amplifies Recession Risks

Cutbacks driven by Musk’s Department of Government Efficiency (DOGE) have seen more than 100,000 federal workers lose their jobs already, with knock-on effects for many contractors. DOGE‘s actions may not be enough to cause a recession on their own, but by moving fast and breaking things, the agency “amplifies the recession risks in two key ways,” according to economist Claudia Sahm. “First, it concentrates the economic effects temporally, and second, it creates uncertainty that can weigh on growth and employment,” she wrote on Tuesday. And that’s against a backdrop of already-slowing growth, still-high interest rates, and snowballing tariffs, Sahm points out.

Trump has acknowledged that Americans may feel “some pain” from the trade war—but says the long-term gains from his agenda will be huge. The administration says tariffs, deregulation, and tax cuts which have begun working their way through Congress will combine to drive an investment boom.

As evidence that its hawkish trade policy is bearing fruit, Trump’s team points to the recent pledge by Taiwan Semiconductor Manufacturing Co., the world’s top producer of AI chips, to invest an additional $100 billion in U.S. plants. Another key part of the policy mix is cheap energy. There are signs that Trump has persuaded oil powerhouses Saudi Arabia and Russia to heed his calls for output increases, which could push pump prices down and offer some relief to U.S. consumers battered by tariffs.

The U.S. economy has repeatedly proven its resilience and defied recession forecasts. Still, the Trump shocks are piling up, according to Stephanie Roth, chief economist at Wolfe Research. “If you were to design something that is really quite negative for the economy,” she told Bloomberg TV, “this is it.”

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