US President Donald Trump has launched a trade war by imposing 25% tariffs on most goods from Mexico and Canada, and an additional 10% duty on imports from China. The move is expected to have significant repercussions on the economy, including lower demand, reduced investment, and slower hiring.
Economists warn that the fallout could lead to a price shock, with consumers retreating and firms curtailing investment and hiring. A recession by next year is not out of the question, according to some analysts. The effective tariff rate spread across roughly $3 trillion in US imports could reach 16% by early 2026, the highest level since 1936.
The S&P 500 index has suffered sharp losses since Trump’s announcement, and yields on US Treasury bonds have fallen to their lowest levels since October. Retail giants like Target and Walmart have warned of lower sales growth this year due to higher prices.
The Federal Reserve will play a crucial role in shaping the outcome. The central bank faces a difficult decision between managing inflation and preventing a recession. Some experts warn that Trump’s actions may leave the Fed with difficulties similar to those faced by former Chairman Paul Volcker in taming inflation without sacrificing growth.
As the US economy adjusts to this new challenge, economists are urging caution and warning of unintended consequences. The trade war is just one part of a larger story of economic uncertainty, with the memory of recent high inflation still fresh and pandemic-era savings buffers likely exhausted.
Source: https://www.reuters.com/markets/us/storm-clouds-gather-over-us-economy-trump-kicks-off-trade-war-2025-03-04