Stagflation is now America’s best-case scenario

DON’T expect the Federal Reserve to rescue the US economy from the epic tariffs the Trump administration has imposed on imports from most of the world. The only question now is how bad the damage will be.

US President Donald Trump’s attack on free trade is truly extraordinary in scope, scale and lack of nuance. The weighted-average tariff will likely climb to 25 per cent or more of the value of imports this year, from less than 3 per cent. This increase amounts to more than 10 times what Trump did in his first term.

The impact will be devastating. Over the next six months, annualised inflation will likely climb to nearly 5 per cent, as tariffs boost import prices and as domestic producers, shielded from competition, take advantage of the situation to raise their prices as well.