Waking up and seeing the market futures down big brought back memories of the movie Apocalypse Now where Lieutenant Colonel Bill Kilgore says “I love the smell of napalm in the morning”. Yesterday’s tariff announcement from the Rose Garden has set the stage for a seismic shift in the U.S. and global economy and brought with it a whiff of stagflation in the air. In my view, the tariff levels—while jaw-dropping in scale—presented a framework that’s being sold as “kind reciprocal”—rates set at half of what the administration claims other countries impose on us. It’s a classic move: inflate the baseline, then tout the discount. Still, these tariffs leave room for escalation, which could either deter retaliation or signal more hikes to come.
I see the policy pursuing a multi-pronged agenda: reshaping trade flows, flexing negotiating muscle, and boosting government revenue, with an unspoken nod to political favor-trading. The structure reflects this—a flat 10% base tariff that’s likely here to stay as a revenue driver, layered with variable rates that can flex by country or product. If fully implemented, we’re looking at an average tariff on U.S. imports hitting 25%—a level unseen in over a century. The immediate fallout? I’d argue it’s a recipe for slower growth and higher inflation. Supply chains will take a hit from the uncertainty—will these tariff rates stick, shift, or skyrocket? —and that’s a drag on investment both here and abroad. On the inflation front, consumers will feel the pinch as import costs rise, and any supply disruptions could amplify the pressure.
The big question is whether this can deliver on its promise of re-industrializing America. I’m skeptical. Sure, we might see a few headline-worthy factory openings, but the broader manufacturing sector could end up worse off. Recent dips in manufacturing PMIs released a few days ago suggest the trade war’s chill is already setting in—hardly a vote of confidence for a sector-wide boom. Instead, we might be staring down a manufacturing recession, or worse.
On the other hand, fiscal policy could tip the scales. Globally, I expect countries like China and Europe to roll out stimulus to offset the tariff squeeze, potentially sparking an inflationary boom overseas. In the U.S., it’s a tug-of-war: tariffs act as a tax drag, spending cuts from DOGE might disappoint, and Congress’s next moves—extending tax cuts or piling on new ones—could either mute or magnify the impact.
Ultimately, I see two possible outcomes:
First Outcome: Growth Slows (or Slips into Recession) with Inflation Kept in Check if Tariffs Take Over
If the tariffs’ impact overshadows any fiscal stimulus, the U.S. economy could face a rough patch. Tariffs function like a tax on imports, driving up costs for businesses and consumers alike. This throws supply chains into disarray, breeds uncertainty—will these rates stick or shift again? —and puts a damper on investment, both here and abroad. That’s a perfect storm for sluggish economic growth, and in the worst case, it might even push us into a recession, especially if industries like manufacturing crumble under the strain. As for inflation, I think it would stay manageable. Yes, tariffs hike import prices, but a weaker economy could cool demand enough to prevent inflation from running wild. Essentially, the price bump from tariffs gets balanced out by a sluggish recovery, keeping inflation elevated but not out of control.
Second Outcome: Growth Stays Steady with Inflation Picking Up if Stimulus Prevails
On the flip side, I see a scenario where fiscal stimulus—think extended tax cuts or fresh ones—outmuscles the tariffs’ drag. If Congress injects enough cash into the system, it could shore up consumer spending and business momentum, holding growth steady despite the trade chaos. But here’s the catch: this comes with a noticeable uptick in inflation. Stimulus revs up demand, and when you combine that with tariffs pushing import costs higher, prices climb more sharply. I’d call this a reflationary lift—meaning inflation rises from a tame baseline as part of an economic rebound, not the stagflation mess where growth stalls. So, in this case, growth hangs on, but we’d feel the pinch of higher prices more distinctly.
Recession odds have significantly increased in the last 60 days and now feel like a coin toss now—50/50—and the risks lean toward weaker growth and stickier inflation. Stagflation’s not off the table here, while the rest of the world might dodge the worst with reflation.
This tariff gamble could redefine the economic landscape, and the outcomes are anything but certain.
