The recent pullback in the Trump administration’s trade actions is smaller than many market participants first assumed. Although officials announced a 90-day delay and cut most reciprocal tariffs to 10%, U.S. consumers continue to experience the highest effective tariff burden since 1909.
PIMCO economist Tiffany Wilding cautions that the tariff increases represent an economic shock comparable to episodes not seen since the 1920s and 1930s. Her analysis suggests that each percentage point added to tariffs reduces U.S. GDP growth by roughly 0.1 percentage point while exerting upward pressure on inflation by a similar magnitude. Based on these dynamics, Wilding warns of an elevated risk of recession and projects that core inflation could rise toward 4.5% under current policies.
The trade relationship with China has become particularly strained. The White House has reported that tariff rates on certain Chinese goods have reached the equivalent of 145% when combined and weighted. Observers characterize the current stance as a narrowing but deepening of the trade conflict, raising the possibility of a sustained economic separation — a “full decoupling” — between the world’s two largest economies.
Independent calculations from TD Securities indicate that the import-weighted average U.S. tariff has risen, not fallen: their data show an increase from about 23.9% to roughly 26.2% since April 2nd. That measurement reflects changes in policy and the composition of tariffed goods, highlighting how headline tariff cuts can mask a higher effective burden when applied to the most heavily imported items.
For households and businesses, higher tariff burdens translate into greater costs. Importers face steeper input prices, which often flow through to consumer prices, squeezing real incomes and margins. In turn, reduced purchasing power and higher production costs can slow demand and investment, reinforcing downside risks to economic growth. The combination of slower growth and higher inflation—stagflationary conditions—would limit central banks’ ability to respond with conventional monetary easing.
Policy makers and market participants are watching several channels closely: the breadth of goods affected by tariffs, how businesses adjust supply chains, and whether retaliatory measures from trading partners escalate. Even with temporary pauses or targeted reductions, the deeper shift in trade policy can reshape global supply chains over time, encouraging firms to reconfigure sourcing and production patterns to manage tariff exposure.
Ultimately, the trade policy environment now reflects a higher effective level of protectionism than before. That change is already filtering through to inflation and growth expectations and increases the probability of a downturn unless offset by other policy measures or rapid adjustments by firms and consumers. Analysts emphasize that the timing and severity of any recession will depend on how long elevated tariffs persist and how broadly economic actors adapt to the new trade landscape.