US President Donald Trump's risky $1.4 trillion tariff war

The imposition of tariffs on $1.4 trillion in imported goods could be the biggest test of President Trump’s approach to trade, and the biggest bet of his presidency.

This strategy could have a significant impact on the US economy, especially the cost of living for people. While Mr. Trump believes that tariffs are an effective negotiating tool, many economists warn of the potential negative effects.

The Risks of Tariffs to the US Economy

Many experts say President Trump’s tariffs could backfire, raising grocery store prices, causing stock market volatility or reducing jobs in a full-blown trade war.

Mary Lovely, a senior fellow at the Peterson Institute for International Economics, called it “the biggest own goal ever,” arguing that the policy could slow the economy and increase inflation.

The Wall Street Journal also strongly criticized Mr. Trump's move, calling it "the most foolish trade war in history." According to the newspaper's editorial, President Trump's justification for imposing high tariffs on Canadian and Mexican goods is "absurd," and warned of the risk of failure of this strategy.

The world has changed more during Trump's first term.

President Trump imposed tariffs during his first term, but they did not cause any worrying inflation. But the current situation is far different. This time, Trump plans to impose tariffs on $1.4 trillion worth of goods, three times the $380 billion in his first term.

Inflation has not been a major problem for the US economy in the past. But today, prices in the US have risen in many areas, from food to cars.

Consumers and Federal Reserve officials are now much more sensitive to price fluctuations, so the impact of Mr. Trump’s tariff policy could be much more severe.

Risk of backfire on the US economy

The White House insists President Trump’s new tariffs will not negatively impact the US economy. However, many economists worry that imposing tariffs on Canada and Mexico could lead to supply chain chaos and higher prices.

Christine McDaniel, a former trade official under President George W. Bush, said tariffs as high as 25% could cause "devastation to the North American economy, on which the United States depends."

The auto industry could be particularly hard hit, as car parts have to cross borders multiple times before a vehicle is sold. Tariffs could add $3,000 to the price of a car, according to Wolfe Research.

Price pressure at grocery stores

One of the biggest concerns about President Trump’s tariffs is the impact on the price of essential goods. Mexico is the largest foreign supplier of fruits and vegetables to the United States, while Canada leads in grains, meat and sugar. If the new tariffs are imposed, prices at U.S. grocery stores could rise sharply.

Mary Lovely said the tariffs would certainly push up prices for goods, especially food and building materials. She said prices might not increase immediately but would increase over time, affecting consumers in many different areas.

The oil industry is also worried about the prospect of higher gasoline prices. Canada is the largest source of foreign oil for the United States, so tariffs could push up fuel prices, especially in the Great Lakes, Midwest and Rockies. As a result, the White House has reduced tariffs on energy imports from Canada to 10 percent from 25 percent.

Impact on US economic growth

Trump’s tariffs could impact not only consumer prices but also economic growth. The new tariffs, along with retaliatory measures from Mexico, Canada and China, could reduce US GDP growth by 1.5 percentage points in 2025 and 2.1 percentage points in 2026, according to EY chief economist Gregory Daco.

Mr. Daco warned that tariffs could create a “stagflationary shock,” a combination of slowing growth and rising inflation, and cause major volatility in financial markets.

The risk of Fed intervention

Another important factor affecting the US economy is the Fed’s response. If tariffs lead to higher inflation, the Fed may have to keep interest rates high for longer than previously expected. This would put pressure on the economy and could cause consumer spending to decline.

While President Trump may be able to reach a last-minute deal to avoid negative impacts, raising tariffs to such high levels on so many goods is still a risky move that even Trump has not attempted in his first term.

Joe Brusuelas, chief economist at accounting firm RSM, warned that “the administration is playing with fire” with its tariffs. If President Trump does go ahead with the $1.4 trillion tariffs, the U.S. economy could face unprecedented risks.