WASHINGTON – President Donald Trump escalated his trade war on Sunday, announcing a new global tariff of 15% on imports from all countries, a move that threatens to derail hopes for interest rate cuts and further complicate the economic outlook. The decision comes just days after the Supreme Court rejected his previous attempt to impose sweeping tariffs, a setback that appeared to briefly galvanize the president into action.
The move, initially a 10% tariff that was quickly raised to 15%, is a signature policy for Trump, rooted in the belief that it will incentivize businesses to invest and innovate within the United States, ultimately boosting incomes and creating prosperity. However, economists warn that the tariffs will likely translate into higher costs for American consumers and businesses, potentially fueling inflation and hindering economic growth.
The tariffs are also expected to generate significant revenue for the US government. The tariffs previously rejected by the Supreme Court had already raked in approximately $110 billion (£81 billion) from importers. Capital Economics estimates that the new 15% global tariff will push the effective tariff rate to 14.5%, slightly above pre-Supreme Court levels.
The timing of Trump’s decision is particularly problematic for the Federal Reserve, and its newly appointed chair, Kevin Warsh. The central bank is already navigating a complex economic landscape, with conflicting signals about inflation, and growth. The increased tariffs add another layer of uncertainty, potentially making it more difficult for the Fed to determine the appropriate course of monetary policy.
Trump has publicly pressured Warsh to implement “very substantial” interest rate cuts, but the Fed faces a delicate balancing act. Some officials are concerned that continued economic growth could lead to rising inflation, necessitating rate hikes, while others believe that cuts are still warranted. The new tariffs complicate this calculus, potentially pushing the Fed towards a more hawkish stance.
Governor Maura Healey of Massachusetts has already voiced concerns about the potential impact of Trump’s tariffs, particularly a proposed 25% tariff on Canadian products. Healey warned that such a tariff could increase electricity costs in Massachusetts by as much as $200 million annually, and would harm businesses across the state. She emphasized the importance of a unified response from the business community and her administration to urge the White House to reconsider.
The situation is further complicated by the fact that companies who paid tariffs under the previously invalidated International Emergency Economic Powers Act (IEEPA) are now seeking refunds. While these refunds could provide a temporary fiscal stimulus, they do little to address the underlying economic concerns raised by the new tariffs.
Analysts at TS Lombard suggest that recreating the bullish macroeconomic conditions of the 1990s will be difficult, even with the appointment of Warsh and Treasury Secretary Scott Bessent’s push for deregulation. They argue that tariffs and immigration restrictions have damaged US supply potential, and that private sector investment is unlikely to surge as hoped.
The stock market also appears to be reacting negatively to the news, with some analysts warning of a potential crash in 2026. The S&P 500’s high valuation, combined with the economic headwinds created by the tariffs, could lead to a significant decline in stock prices.
As Warsh takes the helm of the Federal Reserve, he faces a daunting challenge. He must navigate a complex economic landscape, appease a demanding president, and maintain the credibility of the central bank. Whether he can succeed remains to be seen, but one thing is clear: Trump’s trade war is adding significant uncertainty to the US and global economies.
as Healey has pointed out, mastering inflation is crucial for achieving full employment. Whether Trump’s latest move will help or hinder that goal remains a critical question for the months ahead.
