Here’s how Donald Trump’s mercurial, temperamental, ad hoc tariff policies are wreaking havoc on the American economy. In June, consumer prices rose 2.7% over the last year. In response, the effective tariff rate has shot up to 20.6%, the highest level since 1910. This new surge is raising fears of persistently high inflation and its associated threat to economic growth.
As of August 1, the new tariffs will have an immediate and non-discriminatory impact on dozens of countries. The Trump administration’s plan would set rates that high—or even higher, up to 50%. The stock market responded immediately with jubilation to these actions. After the initial tariff announcements themselves, the Dow Jones Industrial Average dropped almost 4%, and the S&P 500 fell by 4.8%.
Trump’s trade framework with China was supposedly all about eliminating tariffs. Additionally, their defaults plummeted from a massive 145% to only 30%. Still, analysts say that despite these rollbacks, tariffs are still very high, even for the Trump era, although they are down from the peak inflationary levels.
Over the past few months, Trump’s administration has rolled back some of its most onerous tariffs. The transition inauguration, in fact, was responsible for the one of the largest, single-day stock market increases in history. This spike occurred immediately following the announcement of sweeping tariffs on April 2. The day after those announcements, major stock indexes lost approximately $3.1 trillion in value, illustrating the volatility surrounding Trump’s tariff policies.
In a thoughtful effort to relieve market panic, Trump delayed 60% of the tariffs for 90 days. He made clear his desire to pursue bilateral trade agreements with some of our most important trading partners. He does not ever waver from the idea that he’s just retreated on tariffs. For starters, he claims, their unpredictable nature is a core element of his joint-bargaining strategy.
Bret Kenwell, an analyst, noted that for markets to express greater concern regarding tariffs, investors would need to witness “significantly higher inflation.” He emphasized a growing sentiment among investors regarding “headline fatigue” in response to ongoing tariff updates from the Trump administration.
Callie Cox told us that she’s worried about the long-term impacts of such policies.
“Call it TACO, or corporate resiliency, whatever you want. Tariffs are coming due in the form of higher inflation, thinner margins, or a combination of both. I’m still not sure people have processed this,” – Callie Cox
Yet this mix of direct tariff hikes and self-inflicted market response has operated to produce highly mixed feedback across analyst circles on ultimate impact. In one such example, a BNP Paribas memo expressed only token worry that Trump’s tariffs would trigger recession given the state of the economy.
Kenwell further explained how investors view Trump’s trade policies. He warned that a lot of people still see these pronouncements not as commitments but as starting points for negotiation.
“There’s a realization that all of these trade headlines and policy proposals are a negotiating tactic rather than a hardline stance,” – Bret Kenwell
He noted that as soon as negotiations were signaled by the administration, markets saw a clear shot at a deal with the potential for compromise.
“Once the administration opened the door to a negotiating period, that’s when markets realized there’s a point where the administration was willing to back down,” – Bret Kenwell
In light of the chaotic landscape of tariffs and their possible effects on inflation and stock market performance, Kenwell delivered a major wake-up call. He praised the unprecedented resilience of markets.
“Markets find a way to shrug off bad news,” – Bret Kenwell
