Why Wall Street is Starting to Embrace Trump’s Trade War Despite High Tariffs

U.S. tariffs on imported goods have recently settled at levels slightly lower than what President Donald Trump initially suggested in April. This has brought some relief to Wall Street’s worries about a recession. Following a U.S.-European Union trade deal, the effective tariff rate now seems to be around 15% to 20%. While this is a rise compared to the low rates from earlier this year, it’s far from the 25% that had many economists anxious.

In April, Trump’s announcement raised concerns that higher tariffs would send inflation soaring and slow down the economy significantly. Yet, fears of disaster have lessened. Experts highlight a few positive factors: steady global growth, a smaller-than-expected long-term impact of tariffs on inflation, and better financial conditions.

For instance, JPMorgan Chase reduced its prediction for recession risk from 60% to 40%. Bruce Kasman, JPMorgan’s chief economist, noted that while tariffs act like a tax on U.S. purchases of foreign goods, their impact isn’t enough to derail economic growth. Instead of retaliation, which many expected, there seems to be a slight move towards opening up markets.

Despite this optimism, some analysts still warn of potential challenges. Michael Zezas from Morgan Stanley believes we might see slow growth and persistent inflation, rather than a full-blown recession. He’s cautious about how trade issues and immigration policies could negatively impact growth.

Current negotiations are crucial. Additional problems need to be resolved before the looming August 1 deadline, and further hostility in trade relations could push the economy toward a slowdown.

As the Federal Reserve prepares for its upcoming meeting, it will be assessing how these tariffs affect inflation. Since Trump’s presidency began, the Fed has kept interest rates steady, largely due to the uncertain impact of tariffs. Although action isn’t expected at this meeting, the final tariff rates will significantly influence future Fed decisions, especially if the economy weakens while keeping inflation manageable.

Citigroup economist Andrew Hollenhorst pointed out that though tariff rates are higher now than at the start of the year, they are stabilizing around 15%. This reassures the market that the economic slowdown and inflation risk won’t be severe.

In summary, while tariffs still present a risk, the current outlook is more hopeful than it was a few months ago. Navigating these changes will be crucial for the economy in the coming months.



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