Trumps Tariff Policy Stirs Inflation and Slows US Economy

Seven months into his second administration of office, former President Donald Trump policy of imposing again substantial tariffs is transforming the economic picture of the United States. Although the move was initially received by arguments of resilience, it is now leading to an increase in inflation, a stagnation in growth, and causing severe problems to the monetary policy.

A sharp increase in Tariffs

Using executive orders, the U.S. has applied so-called "reciprocal tariffs" automatically increasing the import-equivalent tariff rate to between 9.1 percent and 18.6 percent. This unmitigated rise in the price of imported commodities has become one of the major contributors to the further economic outcomes.

Key Economic Impacts

• Rising inflation: The tariffs have driven inflation rates, which are measured in personal consumption expenditures (PCE), to a level of nearly 3% close to Federal Reserve (Fed) desirable level of 2%. The input costs such as the producer prices have also soared meaning, more rises in prices of the products to the consumer.
• Stalled Monetary Policy: The tariff-driven inflation has led the Federal Reserve to use postponed interest rate cut-offs that were meant to prop the economy, which adds a further negative impetus on the economy.
• Dampening GDP Growth: The projections reveal a substantial decrease in the GDP growth rates as GDP is expected to moderate by almost half to 1.9 percent in 2025 and nearly two-thirds to 1.2 percent in 2026, which is concerning to the upcoming stagflation.
• Weaker Job Market: Employment growth is weakening, job creation is slowing down and unemployment has been increasing as economic uncertainties are heightening since June.
• Debasing the currency: In opposition to the intentions to make the U.S. stronger, the dollar has debased compared to other major currencies such as the euro and the yen thereby diminishing the purchasing power of the American consumers.

The reality of the mixed and often difficult economic environment under a new tariff regime is evident in the blended, and uneven performance reflective in the market indices.