"Dollar on Defensive as Trump Tariffs Fuel Economic Worries"

The U.S. dollar is under pressure as President Trump's aggressive tariff policies threaten to derail the economy. The tariffs, which target a wide range of products and countries, are expected to have significant long-term economic implications. The dollar's defensive stance reflects growing concerns about the potential impact of these tariffs on inflation, unemployment, and overall economic growth.

The tariffs imposed by Trump in 2025 are similar in nature to those from his first term, but with some key differences and escalations. In his first term, Trump imposed tariffs on thousands of products valued at approximately $380 billion in 2018 and 2019, which amounted to one of the largest tax increases in decades. These tariffs targeted a wide range of products, including steel, aluminum, and various goods from China.

In 2025, Trump has imposed and threatened a variety of new tariffs, including a 20 percent tariff on all imports from China, a 25 percent tariff on all imports from Mexico, a 25 percent tariff on all imports from Canada (excluding energy resources), and a 25 percent tariff on all imports from the European Union. Additionally, he has expanded the Section 232 steel and aluminum tariffs, ending country exemptions and raising the tariff rate on aluminum from 10 percent to 25 percent. These changes are scheduled to take effect on March 12, 2025.

The potential long-term economic implications for the U.S. are significant. The imposed tariffs on China are estimated to reduce long-run GDP by 0.1 percent, while the proposed tariffs on Canada and Mexico are estimated to reduce long-run GDP by 0.3 percent. The proposed expansion of steel and aluminum tariffs is estimated to reduce long-run GDP by less than 0.05 percent, and the proposed tariffs on motor vehicles and motor vehicle parts are estimated to reduce long-run GDP by 0.1 percent—before accounting for foreign retaliation.

The 2018-2019 trade war tariffs imposed by Trump and retained by Biden are estimated to reduce long-run GDP by 0.2 percent, the capital stock by 0.1 percent, and employment by 142,000 full-time equivalent jobs. Academic and governmental studies find that the Trump-Biden tariffs have raised prices and reduced output and employment, producing a net negative impact on the U.S. economy.

The tariffs are expected to reduce long-run GDP by 0.1 percent for China, 0.3 percent for Canada and Mexico, less than 0.05 percent for steel and aluminum, and 0.1 percent for motor vehicles and motor vehicle parts—before accounting for foreign retaliation. The 2018-2019 trade war tariffs imposed by Trump and retained by Biden reduced long-run GDP by 0.2 percent, the capital stock by 0.1 percent, and employment by 142,000 full-time equivalent jobs.

The broader economic impact of the tariffs could lead to higher prices, reduced output and employment, and a potential economic slowdown. The Atlanta Fed’s GDPNow model slashed its Q1 2025 forecast to -2.8% from -1.5% just weeks earlier, driven by collapsing net exports and weaker consumer spending—a sign that Trump’s trade policies may be accelerating a contraction.

The Federal Reserve's monetary policy is likely to face significant challenges in responding to the inflationary pressures caused by the tariffs. As of 2025, inflation is already hovering around 3-4%, which is above the Federal Reserve’s 2% target. The reimposed tariffs are expected to push consumer prices higher, as they did during the 2018-2019 trade war when they added an estimated 0.5% to inflation, according to the Federal Reserve Board’s analysis. The Peterson Institute for International Economics noted that while tariffs on Chinese imports raised costs for U.S. consumers and firms, the direct impact on overall inflation was relatively shy, with the impact on personal consumption expenditure (PCE) increasing only by 0.35 percentage points. However, today’s economic environment is less forgiving, with inflation already elevated and interest rates at 4.25-4.50%, as reported by the Federal Reserve’s current rate summary.

Given these conditions, the Federal Reserve has limited room to cut rates without reigniting price pressures. Additional costs from tariffs could force the Federal Reserve to maintain high rates longer, risking a deeper slowdown. This inflationary pressure ties directly to economic growth indicators, with the Atlanta Fed’s GDPNow model slashing its Q1 2025 forecast to -2.8% from -1.5% just weeks earlier, driven by collapsing net exports and weaker consumer spending—a sign that Trump’s trade policies may be accelerating a contraction.

The Atlanta Fed’s GDPNow highlights the broader economic fragility. The model’s -2.8% growth estimate for Q1 2025 reflects a sharp decline in net exports—from a -0.41-percentage point contribution to -3.70 points, along with a drop in real personal consumption expenditures growth from 1.3% to 0.0% and real private fixed investment growth from 3.5% to 0.1%.

Net exports are suffering as tariffs disrupt trade flows and invite retaliation from partners, depressing U.S. exports. Consumer spending, which drives two-thirds of GDP, is faltering as households face higher prices, economic uncertainty, and political volatility. If these trends continue, the U.S. risks slipping into a recession, defined by two consecutive quarters of negative growth. The interplay between tariffs, inflation, and unemployment is thus directly undermining economic stability, with early data painting a troubling picture.

The tariffs imposed by President Trump in 2025 are likely to have a significant impact on several key sectors of the U.S. economy, including steel, automotive, tech, and pharmaceuticals. These sectors may need to adapt by diversifying their supply chains, investing in domestic production facilities, or exploring alternative sourcing options to mitigate the impact of the tariffs. However, the broader economic impact of the tariffs could lead to higher prices, reduced output and employment, and a potential economic slowdown.

The steel and aluminum industries may benefit from reduced foreign competition, which could lead to increased domestic production and job creation. However, the higher input costs for downstream industries that rely on steel and aluminum, such as automotive and construction, could lead to higher prices for consumers.

The automotive sector may face higher input costs due to tariffs on steel and aluminum, as well as increased costs for imported auto parts. This could lead to higher prices for consumers and potentially reduced demand. However, domestic automakers may benefit from reduced foreign competition, leading to increased production and job creation.

The tech sector, which relies heavily on global supply chains, is likely to be significantly affected by the tariffs on semiconductors and computer chips. Tech companies may need to diversify their supply chains to reduce reliance on imports from China and other countries subject to tariffs. This could involve investing in domestic production facilities or sourcing components from other countries not subject to tariffs. However, this transition may be costly and time-consuming, potentially leading to higher prices for consumers.

The pharmaceutical sector is also likely to be affected by the tariffs on pharmaceuticals, with rates expected to be “25 percent and higher.” This could lead to higher input costs for pharmaceutical companies, potentially resulting in higher prices for consumers. Pharmaceutical companies may need to explore alternative sourcing options or invest in domestic production facilities to mitigate the impact of tariffs. However, this transition may be challenging due to the complex nature of pharmaceutical manufacturing and the need for specialized equipment and expertise.

The broader economic impact of the tariffs could lead to higher prices, reduced output and employment, and a potential economic slowdown. The Atlanta Fed’s GDPNow model slashed its Q1 2025 forecast to -2.8% from -1.5% just weeks earlier, driven by collapsing net exports and weaker consumer spending—a sign that Trump’s trade policies may be accelerating a contraction.

The Federal Reserve's monetary policy is likely to face significant challenges in responding to the inflationary pressures caused by the tariffs. As of 2025, inflation is already hovering around 3-4%, which is above the Federal Reserve’s 2% target. The reimposed tariffs are expected to push consumer prices higher, as they did during the 2018-2019 trade war when they added an estimated 0.5% to inflation, according to the Federal Reserve Board’s analysis. The Peterson Institute for International Economics noted that while tariffs on Chinese imports raised costs for U.S. consumers and firms, the direct impact on overall inflation was relatively shy, with the impact on personal consumption expenditure (PCE) increasing only by 0.35 percentage points. However, today’s economic environment is less forgiving, with inflation already elevated and interest rates at 4.25-4.50%, as reported by the Federal Reserve’s current rate summary.

Given these conditions, the Federal Reserve has limited room to cut rates without reigniting price pressures. Additional costs from tariffs could force the Federal Reserve to maintain high rates longer, risking a deeper slowdown. This inflationary pressure ties directly to economic growth indicators, with the Atlanta Fed’s GDPNow model slashing its Q1 2025 forecast to -2.8% from -1.5% just weeks earlier, driven by collapsing net exports and weaker consumer spending—a sign