In the weeks leading up to his vast global tariffs, President Trump and his top aides tried to lighten the economic pain on the public. They warned that there is a fallout from their aggressive trade strategy, but it proves short-lived and will benefit the economy in the long term.
Investors, businesses and others revealed Thursday that the US economy is not ready to embrace that approach. Global markets have fallen, economists warned of a possible recession, and consumers withstand rising prices for cars, food, clothing and more.
The early turmoil highlighted Trump's high agenda interests. The President has framed it as a painful medical procedure to save the economy, likened to “sick patients.” In Trump's eyes, the US would be “a boom” if his tariffs had time to reset the country's trade ties, raise revenue and boost domestic production.
However, these tariffs are expected to send tentatively spiked prices. This is an unwelcome development for Americans who have already suffered from long-standing prices. Several economists have increased the likelihood of a forecast recession as they predicted consumer spending, business investment and slowing economic growth.
A new analysis from Yale Budget Lab shows that Trump's overall tariffs could rise in price levels by 2.3% in the short term. This leads to an average loss of $3,800 in electricity purchased per household, based on $2024.
“Prices will rise,” Martha Guinbell, executive director of Yale's budget lab, added that the company is feeling an immediate crisis. “These are really big tariffs. These are not something businesses can expect to just absorb them.”
In an interview Thursday, Stephen Milan, who heads the president's Economic Adviser Council, acknowledged that the economy could become “bumpy” for an unspecified period of time as the administration pursued agendas that included tariffs, tax cuts and deregulation.
“Given the historical extent and speed of the president's actions, it's not surprising that there are some reactions to the financial markets that you're looking at,” he said.
However, Milan argued that the true costs of the president's trade policy will ultimately be borne by other countries, adding that he “disagrees with the argument that Americans will ultimately pay these tariffs.”
The White House guarantee is in stark contrast to the widely adopted views by economists who believe Trump's tariffs are threatening to exacerbate inflation, and perhaps could undermine the recent work of the Federal Reserve trying to control prices.
Alan Detmeister, now a former UBS Fed economist, predicts that the Fed's preference inflation gauge (stripping volatile foods and energy costs) could surge to around 4.5% by the end of the year before it peaks near 5% as growth slows. Inflation could still be at 3% in 2027, he said. As of February, that was 2.8%.
Under Trump's plan, the US is to impose 10% collection on imports, in addition to other countries' tariffs considered unfair trading practices. The looming tax on imports, scheduled to come into effect next week, has caused a global frenzy. US allies are trying to understand how, or whether they will respond, and whether there is a Haggle opening in the administration that issued a contradictory statement about whether it could negotiate tariff levels.
Uncertainty has increased the probability that deepening a prolonged trade war could lead to a global economic downturn. Mark Zandy, chief economist at Moody's Analysis, outlined one end-of-life scenario on Thursday. If Trump introduces the full power of his tariffs and other nations retaliate, the recession will “become imminent and extend until next year,” Zandi predicted in his research notes. He added that the scenario could reduce growth by about 2% and unemployment could reach 7.5%.
Other economists also said the blow to the crunchy labor market before Trump embarked on his world trade war could be severe. Crossing Wall Street, economists are beginning to sharply raise unemployment forecasts, forecasting a jump of nearly percentage points to 5% this year.
This could make workers seeking higher wages, responding to increased cost of living, further recession of pay, and making it more difficult to sow seeds for more serious economic vapors.
He said that increasing unemployment could reduce consumption, cut businesses' profits even further, and force more cuts. “If that ultimately becomes a big problem, 2026 is very likely to be a much more divergent environment, but it's not a positive way to do it,” Sharif said.
More immediately, Gregory Daco, chief economist at Ey-Parthenon, said tariffs could increase the costs of businesses, and the impact of this is not limited to imported products or parts. Even American producers would “surge prices,” Dako predicted.
“The impact of domestically produced products is likely to be very important,” he said.
Recently, clothing and apparel manufacturers have shown that price increases could be on the horizon. “The prices are clearly rising,” says Julie K. Hughes, president of the American Fashion Industry Association, a lobbying group.
Restaurants predict that tariffs could force “hiking food and packaging costs,” causing concerns for grocery stores and wholesalers about “disruption” to generate prices around the world.
And toy makers believe prices “will not go up for the sake of consumers” or “can't” be it,” says Greg Ahearn, president of the Toy Association, a lobbying group that includes boards of directors that include Hasbro and LEGO executives. He said 77% of the toys sold in the US are imported from China and faces heavy tariffs.
Automakers, including Volkswagen, have already raised alarms about rising vehicle costs, as one of the specific industries targeting tariffs apart from the full import taxes Trump announced this week. A variety of companies have signalled investors recently, from budget retailer Dollar to jewelry company Pandora Possible price increases due to the President's recent tariffs.
In response, the president, his cabinet and top advisors sought to curb the uproar that sent stocks on Thursday, one of the worst deals since the height of the 2020 pandemic. Due to his trade policy, Trump predicted that the country would “surge.”
Appearing early in the day in “Fox and Friends,” Vice President JD Vance pleaded for patience, saying, “The thing we ask people to thank here is that we won't fix things overnight.”
For weeks, the Trump administration has been highlighting its long-term goals. This is to attract some of the largest global companies to produce more products in the US. The president said his strategy would also help offset the remaining costs of his agenda, particularly the costs of the legislative package to extend and extend the tax cuts enacted during his first term.
Trump has sometimes portrayed the measure as an antidote to the economic pain felt by his tariffs, claiming that millions of Americans will be spared from seeing the tax hike if current laws expire. The president is also asking Congress to adopt new tax benefits, including a deduction of interest paid on loans to purchase US-made vehicles.
“It's going to take time for all the positive things to filter into the economy,” Milan said.
