Financial experts are growing increasingly concerned that President Donald Trump’s tariffs on goods coming into the United States from other countries could give rise to an economic condition known as "stagflation."
Trump on Tuesday hiked up prices for imports by enacting 25% tariffs on goods from Mexico and Canada and doubling a tariff on Chinese goods to 20%. While the president has touted the move as a way to offset costs associated with proposed tax cuts, the tariffs come during a slowdown in economic activity and rising costs.
For that reason, some analysts fear tariffs will do more damage than simply making some consumer goods more expensive. Taken together, consumers, business leaders and policymakers fear the conditions could create "stagflation," which refers to a period of slow growth but high inflation.
Worries about "stagflation" previously spiked in 2022 amid Russia's invasion of Ukraine, but the phenomenon hasn't been seen in the U.S. since the 1970s and early ’80s.
Here's what to know about stagflation:
What is stagflation and what causes it?
Stagflation happens when economic growth is sluggish while inflation is high. The term lacks a formal definition or specific threshold, but elements include high unemployment and a weakened economy as prices climb.
One factor that can help cause stagflation is a spike in the cost of raw materials, causing inflation and leaving people with less money to spend.
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In the 1970s, Saudi Arabia and other countries imposed an oil embargo on the United States and other nations.
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Oil prices increased as the cost of living grew. In every year from 1974 to 1982, inflation and unemployment in the U.S. were both above 5%.
What's happening right now?
On Wednesday, a report from payroll provider ADP showed private sector employers added just 77,000 jobs in February, well below the consensus of 140,000, and the lowest since July.
“Policy uncertainty and a slowdown in consumer spending might have led to layoffs or a slowdown in hiring last month,” ADP noted in a release. “Our data, combined with other recent indicators, suggests a hiring hesitancy among employers as they assess the economic climate ahead.”
And a closely-watched tracker of economic activity from the Atlanta Fed now shows the economy in deep contraction in the first quarter.
"Uncertainty is crimping confidence," said Jack Ablin, chief investment officer and founding partner of Cresset Capital. "Investor sentiment, an important ingredient for market risk taking, is plunging. At the same time, consumer confidence, an important ingredient for spending, has plunged as well."