"Reciprocal tariffs" effects plunge US economy into inflation-recession trap, threatening both growth and stability

Editor's note: The article, written by Tang Jie, is a research fellow at Academy of International Trade and Economic Cooperation, China's Ministry of Commerce, reflects the author's opinions and not necessarily the views of CGTN. 

The United States' recent escalation of tariff policies ostensibly aimed at protecting domestic industries and rebalancing trade relationships, has instead unleashed a cascade of economic distortions that threaten to entrench inflationary pressures while simultaneously undermining growth. These tariffs have placed significant pressure on US consumers and businesses, exacerbated inflationary pressures, and heightened the risks of economic recession. In the end, tariffs are not a shield but a boomerang: their eventual return will strike hardest those they were meant to protect.

Combined with March 2025 CPI data published by US Bureau of Labor Statistics, which shows stubbornly elevated price levels and a deteriorating consumer sentiment, these tariffs risk plunging the US economy into a stagflationary quagmire—a scenario where rising prices coexist with stagnant demand and shrinking output. This policy misstep, rooted in political expediency rather than economic rationality, exemplifies a dangerous disregard and underestimation of the American government for the interconnectedness of global trade and the fragility of its economic recovery. The immediate impact of tariffs is evident in the upward pressure on consumer prices. By imposing sweeping levies on imported goods- ranging from semiconductors to everyday consumer items, the US has effectively taxed its own households and businesses.

Inflationary pressures amplified by tariffs

First, tariffs act as a tax on imports, raising the cost of goods for domestic consumers. According to a Yale University study, US personal consumption prices will rise by 1.7 percent to 2.1 percent in the short term, and the burden on low- and middle-income families will increase sharply. Many products subject to tariffs, such as electronics, apparel, and household goods, are staples of everyday life, meaning consumers face higher expenses with limited alternatives. These dynamics are exacerbated by retaliatory measures from the trading partners, China's 34 percent tariffs on US agricultural exports for example, have disrupted the supply chains and further inflated food prices domestically for USA. "A tariff is what we call a regressive tax because it pinches families at the bottom more than it does families at the top," Ernie Tedeschi, director of economics at the Yale Budget Lab, told USA TODAY.

Secondly, tariff policies also place a significant burden on companies, affecting their competitiveness and profitability. Tariffs disrupt global supply chains by increasing the cost of trade with key partners. Many US companies rely on imported raw materials, components, and machinery for production. Tariffs increase these input costs, forcing businesses to either absorb the expenses (reducing profitability) or pass them on to consumers (further fueling inflation). Businesses that rely on cross-border production networks face logistical challenges and higher operational costs, reducing efficiency.

Thirdly, tariffs raise the cost of goods and inputs, which businesses pass on to consumers in the form of higher prices. This type of cost-push inflation is particularly damaging because it is supply-driven and not easily alleviated by adjustments in monetary policy. Tariffs affect not only imported goods but also domestically produced goods that rely on imported inputs, creating a cascading effect across industries. This further entrenches inflation in the broader economy. The Federal Reserve's primary tool to combat inflation—raising interest rates—has limited impact on inflation caused by tariffs, because of that the higher interest rates may slow the economy without addressing the root cause of inflation.

Stagflation looms as demand craters

Many American industry associations have expressed concerns about the new policy, believing that it will raise the prices of imported goods, pass on the tariff costs to consumers, and bring risks to the industry. According to the Yale University Budget Lab, after the implementation of the tariff policy, if other countries do not take countermeasures, the US real economic growth rate this year will drop by 0.6 percentage point; if there are countermeasures, the US real economic growth rate will drop by 1 percentage point.

The convergence of stagnant growth and persistent inflation as a stagflation's hallmark—is no longer theoretical. Consumer spending, adjusted for inflation, grew at a meager 0.3 percent in Q1 2025, while business investment contracted for the third consecutive quarter 10. Tariffs have sapped household purchasing power: The average US family now spends an additional $1,200 annually on tariff-affected goods, according to Tariff Hurt the Heartland data. This drag on disposable income is particularly acute for low- and middle-income households. Compounding the pain, the S&P 500's 9 percent weekly plunge—its steepest since 2020—has eroded wealth effects, further dampening consumer confidence, which recently hit a 12-year low. The US steel and automobile industries, among others, are in trouble due to rising import costs. Tesla's sales in Europe have plummeted by 76 percent, and local wine merchants are facing a supply chain disruption crisis due to Europe's counter-tariffs.

The US tariff policy has created significant economic challenges, including higher costs for consumers, reduced competitiveness for businesses, and exacerbated inflationary pressures. These effects have plunged the economy into the dual risks of inflation and recession, undermining growth and stability. Moving forward, a shift away from protectionist measures and toward strategies that promote free trade, domestic industry development, and global cooperation will be essential to address these challenges and foster long-term economic resilience.