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The Economic Consequences of the Tariff War - Ther American Prospect
Investors got some ephemeral relief from Donald Trump’s tariff nonsense on Tuesday when Treasury Secretary Scott Bessent announced formal negotiations with Japan aimed at reaching an agreement, signaling that much of the tariff implementation was perhaps a prelude to a deal. But then Trump announced that an additional 50 percent tariff would be placed on China, in retaliation for their own retaliatory tariffs in response to the initial order, making clear that at least with respect to the world’s largest manufacturer, a trade war is far more likely. Stocks fell on that news. And today, the largest tariffs all take effect.
The important thing to understand is that the economy was spiraling in ways that Americans were feeling before the tariff announcements last week. And even if this pain were confined to equity markets—which it’s not—the possibility of a financial crisis could cascade that pain to everyone’s front door, as we saw in 2008.
Let’s set the scene of what the economy looked like on Liberation Day Eve. Inflation was rising at a rate close to expectations, but slightly hotter if you took out volatile food and energy prices. The threat of tariffs was likely moving the prices of durable goods higher, and even lower prices on eggs, which have plummeted on a wholesale basis (thanks mostly to—guess what!—imports), had not yet reached consumers.
There were pullbacks in spending, and consumer confidence in March was at its lowest level in a few years. In particular, consumers expect inflation to rise to 5 percent year over year, double the current path, and “two-thirds of consumers expect unemployment to rise in the year ahead, the highest reading since 2009.” A separate consumer confidence survey put the public mood at a 12-year low. And that’s an aggregate reading of Americans’ financial picture. More than 1 in 4 New Yorkers couldn’t afford basic necessities last winter, while auto repossessions were at the highest level in 15 years.
The important thing to understand is that the economy was spiraling in ways that Americans were feeling before the tariff announcements last week. And even if this pain were confined to equity markets—which it’s not—the possibility of a financial crisis could cascade that pain to everyone’s front door, as we saw in 2008.
Let’s set the scene of what the economy looked like on Liberation Day Eve. Inflation was rising at a rate close to expectations, but slightly hotter if you took out volatile food and energy prices. The threat of tariffs was likely moving the prices of durable goods higher, and even lower prices on eggs, which have plummeted on a wholesale basis (thanks mostly to—guess what!—imports), had not yet reached consumers.
There were pullbacks in spending, and consumer confidence in March was at its lowest level in a few years. In particular, consumers expect inflation to rise to 5 percent year over year, double the current path, and “two-thirds of consumers expect unemployment to rise in the year ahead, the highest reading since 2009.” A separate consumer confidence survey put the public mood at a 12-year low. And that’s an aggregate reading of Americans’ financial picture. More than 1 in 4 New Yorkers couldn’t afford basic necessities last winter, while auto repossessions were at the highest level in 15 years.
https://prospect.org/economy/2025-04-09-economic-consequences-tariff-war/
