In the weeks leading up to his expansive global tariffs, President Trump and his top aides tried to prime the public for economic pain. They warned that while there would be fallout from their aggressive trade strategy, it would prove short-lived and benefit the economy in the long run.
Investors, businesses and others made clear on Thursday that the U.S. economy was not ready to accept that approach. Global markets tumbled, economists warned of a possible recession and consumers braced for price increases on cars, food, clothing and more.
The early tumult underscored the high stakes of Mr. Trump’s agenda, which the president has framed as a painful medical procedure to rescue an economy he likened to a “sick patient.” In the eyes of Mr. Trump, the United States is going to “boom” once his tariffs have had time to reset the nation’s trade relationships, raise revenue and boost domestic production.
But those tariffs are expected to send prices skyrocketing in the interim, an unwelcome development for Americans already struggling with years of elevated prices. Several economists have increased the odds of a recession in their forecasts as they projected a slowdown in consumer spending, business investment and economic growth.
A new analysis from the Yale Budget Lab found that Mr. Trump’s overall tariffs could cause price levels to rise 2.3 percent in the short term. That would translate into an average loss of $3,800 in purchasing power per household based on 2024 dollars.
“Prices are going to go up, period,” said Martha Gimbel, executive director of the Yale Budget Lab, adding that companies were going to feel the immediate pinch. “These are really big tariffs. These are not things we can expect companies to just absorb.”
In an interview on Thursday, Stephen Miran, who leads the president’s Council of Economic Advisers, acknowledged that the economy could be “bumpy” for an unspecified period as the administration pursued its agenda, which includes tariffs, tax cuts and deregulation.
“It shouldn’t be surprising, given the historic scope and speed of the president’s actions, that there are some reactions around financial markets, like what you’re seeing,” he said.
But Mr. Miran maintained that the true cost of the president’s trade policies would ultimately be borne by other countries, adding: “I don’t agree with the argument Americans are ultimately going to be paying for these tariffs.”
The White House assurances offered a stark contrast with the view broadly adopted by economists, who believe Mr. Trump’s tariffs threaten to exacerbate inflation, possibly undermining the recent work of the Federal Reserve to try to bring prices under control.
Alan Detmeister, a former Fed economist now at UBS, forecast that the Fed’s preferred inflation gauge — which strips out volatile food and energy costs — could spike to around 4.5 percent by the end of the year before peaking close to 5 percent in early 2026 as growth slows. Inflation could still be stuck around 3 percent in 2027, he said. As of February, it stood at 2.8 percent.
Under Mr. Trump’s plan, the United States is set to impose a 10 percent levy on imports, in addition to other tariffs on countries seen as engaging unfair trading practices. Set to take effect next week, the looming taxes on imports have set off a global frenzy, as U.S. allies try to figure out how or whether to respond, and whether there is any opening to haggle with an administration that has put forth contradictory statements on whether it might negotiate tariff levels.
The uncertainty has raised the odds that a protracted and deepening trade war could cause a global economic downturn. Mark Zandi, the chief economist at Moody’s Analytics, outlined one doomsday scenario on Thursday. If Mr. Trump puts in place the full force of his tariffs, and other nations retaliate, a recession “will hit imminently and extend until next year,” Mr. Zandi predicted in a research note. He added that growth could fall by about 2 percent and unemployment could reach as high as 7.5 percent in that scenario.
Other economists also said the blow to the labor market, which had cooled before Mr. Trump embarked on his global trade war, could be severe. Across Wall Street, economists have started to raise their forecasts for unemployment sharply, with some projecting a nearly percentage-point jump to 5 percent this year.
That could make it more difficult for workers to seek higher wages and keep pace with cost-of-living increases, further denting their spending power and sowing the seeds for a much more significant downturn, warned Omair Sharif, founder of the research firm Inflation Insights.
He said an uptick in unemployment could also reduce consumption, cutting even further into corporate profits and forcing yet more retrenchment. “If that ends up becoming a big problem, then very likely 2026 is a much more disinflationary environment but not in a positive way,” Mr. Sharif said.
Gregory Daco, the chief economist at EY-Parthenon, said that more immediately, the tariffs could increase businesses’ costs and that the impact would not be limited to imported products and parts. Even U.S. producers “will also increase their prices,” Mr. Daco predicted, “and, in a sense, free-ride this increased pricing environment.”
“The shock for domestically produced goods is likely to be quite significant,” he said.
In recent days, clothing and apparel makers have signaled that price increases may be on the horizon: Julie K. Hughes, the president of the U.S. Fashion Industry Association, a lobbying group, said that “obviously the prices are going to go up,” since apparel sold in the United States is manufactured in China, Vietnam and other countries facing high tariffs.
Restaurants have predicted that tariffs could force them to “hike food and packaging costs,” and grocers and wholesalers have raised concern about “disruptions” to produce prices worldwide.
And toy manufacturers see “no possible way” that prices “are not going to go up for consumers,” according to Greg Ahearn, the president of the Toy Association, a lobbying group whose board of directors includes executives from Hasbro and Lego. He said 77 percent of toys sold in the United States were imported from China, which faces heavy tariffs.
Automakers, including Volkswagen, already have raised alarm about rising vehicle costs, as one of the specific industries that Mr. Trump has targeted for tariffs separate from the across-the-board import taxes he announced this week. A range of companies, from the budget retailer Dollar Tree to the jewelry company Pandora, recently have signaled to investors the potential for price increases resulting from the president’s recent tariffs.
In response, the president, his cabinet and top advisers tried to tamp down the tumult that sent stocks plummeting Thursday, one of the worst days of trading since the height of the pandemic in 2020. Speaking to reporters before boarding Air Force One, Mr. Trump predicted that “the country is going to boom” because of his trade policies.
Appearing earlier in the day on “Fox and Friends,” Vice President JD Vance made a plea for patience, saying: “What I’d ask folks to appreciate here is we are not going to fix things overnight.”
For weeks, the Trump administration has emphasized a longer-term goal: attracting some of the largest global companies to produce more of their products in the United States. The president has said his strategy could also help offset the cost of the rest of his agenda, particularly a legislative package to extend and expand tax cuts enacted during his first term.
Mr. Trump has portrayed that measure at times as an antidote to any economic pain felt by his tariffs, arguing it would spare millions of Americans from seeing a tax increase if current law expired. The president has also called on Congress to adopt new tax benefits, including a deduction for interest paid on loans to buy U.S.-made vehicles.
“It will take some time for all the positive things to filter into the economy,” Mr. Miran said.
