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Key Takeaways
- President Donald Trump paused most of his "reciprocal" tariffs this week, leaving many others in place, as a simmering trade war threatens to be a drag on growth and push up prices.
- Even after the pause in import tax, an economist estimated that the average household will still pay more than $4000 a year.
- The remaining tariffs will drag down economic growth and stoke inflation, potentially leading to "stagflation," forecasters said.
Financial markets may be celebrating the 90-day reprieve of President Donald Trump’s “Liberation Day” tariffs this week, but the U.S. outlook is still the same as before the pause.
Even though Trump has withdrawn the various’reciprocal tariffs’ that the White House announced in the last week, higher consumer prices, slower economic growth, and a greater risk of recession still remain forecast.
The rapid-fire changes to tariff policy mean that many importers are now facing lower tariffs than originally announced. U.S. importers will still face higher prices than a year ago. The remaining tariffs include the following:
- Tariffs on China of 145%
- A 10% Global Tariff
- Tariffs of 25% on certain products imported from Canada and Mexico
- A 25% tariff is set to be implemented on cars and car parts in May
- Tariffs of 25% on steel and aluminum
The tariff against China was so extreme it was nearly the same as entirely cutting off trade with the U.S.'s third-largest trading partner, several economists said.
"The average tariff rate currently stands at around 20%, with the tariff rate on China…constituting a de facto embargo," Preston Caldwell, chief U.S. economist at Morningstar, wrote in a commentary Wednesday. "By comparison, at the end of 2024, the average effective tariff rate was 2.4%."
Pantheon Macroeconomics estimates that the U.S. is likely to buy 90% fewer goods from China if tariffs are maintained, and will shift purchases elsewhere.
Forecasters say that inflation and recession are still possible.
Forecasters warned that the remaining tariffs would have a significant financial impact on U.S. consumers and the economy. Goldman Sachs’ economists have lowered their forecast for a possible recession in the year ahead from 60% to 45%.
“What we saw yesterday changed our view of the impact on the economy. But it doesn’t alter the fact that there is still a substantial rate of tariff,” Alec Phillips stated in a conference with clients.
Other forecasters stated that the 90-day reprieve did not reverse the damage.
“It was encouraging that the president reversed himself yesterday on the so-called reciprocal tariffs, but I wouldn’t take much comfort in it because the global trade conflict continues to rage. Mark Zandi posted on social media that he still believes the odds of a global recession this year are 60%.
The predictions markets were equally pessimistic. Bettors on Polymarket put a 60% chance that a recession will occur in 2025.
According to economists at Yale Budget Lab, the cost of tariffs is likely to be passed onto consumers. The lab revised their estimates after the pause, and found that the average U.S. household would still lose $4.700 in purchasing power each year.
