Trump Tariffs Raise Inflation and Recession Risks

President Donald Trump’s harsher-than-expected global tariffs sent economists scrambling to revise their economic estimates.

Financial firms revised their forecasts on Thursday to reflect the new, gloomier economic outlook. The tariffs of at least 10% on most countries trading with the U.S., plus higher rates for other major trading partners, are likely to have seismic, complex and long-lasting effects on the economy, forecasters said.

The U.S. Gross Domestic Product will now likely shrink to 0% to 0.5% over the course of 2025, Kathy Bostjancic, chief economist at Nationwide, estimated. That’s compared to her previous forecast of 1% to 1.5% growth. Economists at Nomura now expect inflation as measured by core PCE inflation to run at 4.7% at the end of the year, up from 3.5% in their previous forecast and 2.8% currently.

Economists at Oxford Economics said the U.S. had become “dangerously vulnerable” to a recession and that risks would rise significantly if the announced tariffs stayed in place.

“Recession risk has vaulted up,” Preston Caldwell, senior U.S. economist for Morningstar Research, wrote in a commentary. “But a recession can be purely short-run pain. If the tariff hikes are maintained, they will permanently reduce U.S. real gross domestic product, and hence real living standards for the average American.”

The policy is Trump’s effort to reshape a global trading system, which he has long denounced as unfair to the U.S. The White House has pushed back on economists forecasts about tariffs this week, saying the import tax is “an effective tool for achieving economic and strategic objectives.”

The tariffs are likely to push up the cost of living as merchants are likely to pass higher costs of imports on to consumers, potentially reigniting inflation, economists said. However, the tariffs could also slow down the economy, putting downward pressure demand and prices. Another possible outcome is “stagflation,” or a combination of stagnant economic growth and high inflation.

“The magnitudes of the tariffs being considered is clearly material, and sufficient to put the economic expansion at risk should they be put in place for a prolonged period of time,” Jonathan Pingle, chief U.S. economist at UBS, wrote in a commentary.