Following a chaotic 2025 that jolted global trade and financial markets, 2026 seemed poised to let the U.S. economy move beyond President Donald Trump’s tariffs.
That didn’t last long.
Tariffs have returned to the agenda just a few weeks into the new year. On Saturday, Trump announced tariffs starting next month that will increase to 25% by June until a “Deal is reached for the Complete and Total purchase of Greenland.”
Though not all targeted nations are members of the European Union, the new levies come even after a prior agreement that set a 15% tariff on most EU products and obligated the bloc to invest hundreds of billions of dollars in the U.S.
On Monday, Trump added that countries trading with Iran would face a 25% duty on U.S. trade, threatening to break a fragile tariff truce with China—one of the top importers of Iranian oil.
The U.S. now risks a new cycle of retaliation and escalating tariffs. On Saturday, French President Emmanuel Macron hinted at what comes next.
“Tariff threats are unacceptable and have no place in this context. Europeans will respond in a united and coordinated manner should they be confirmed,” he said. “We will ensure that European sovereignty is upheld.”
This wasn’t the expected outcome. Wall Street, Corporate America, and consumers were looking forward to an economic boost from tax cuts in Trump’s One Big Beautiful Bill Act, plus greater calm on the trade front.
On Friday, analysts at Bank of America highlighted an exceptionally upbeat 2026 GDP growth forecast of 2.8%—well ahead of the 2.1% consensus estimate.
“The key drivers are easier fiscal and monetary policy, and our expectation of more growth-friendly trade policy,” BofA noted in a report.
Meanwhile, the Federal Reserve was also anticipating continued moderation in inflation this year. Policymakers assumed tariffs would deliver a one-time price jolt rather than sustained upward pressure.
A new flurry of import taxes could put that expectation at risk and jeopardize future rate cuts if inflation remains stubbornly above the Fed’s 2% target.
The Fed’s most recent report on economic and business conditions across the country also reflected hope that tariff anxiety was finally easing:
- “The outlook improved on balance, with more optimism and a bit less caution than in the last report, boosted in part by reduced uncertainty from tariffs.”
- “Retail and tourism contacts were cautiously optimistic heading into 2026, based on recent stability in consumer spending, greater clarity on tariffs, and Boston’s 2026 World Cup soccer events.”
- “Firms reported an abatement of tariff-related uncertainty from a combination of stabilized tariff policy and their own adjustments, such as the completion of a new production facility by a frozen foods manufacturer.”
Trump’s new tariffs represent a sharp reversal from late last year. Back then, the administration rolled back some food import levies and delayed furniture tariff hikes as voters demanded more affordability and relief from high prices.
Trade-exposed sectors of the economy have already suffered a heavy toll from tariffs. For example, manufacturers have shed 70,000 jobs since Trump unveiled his “Liberation Day” duties in April 2025.
The Institute for Supply Management’s manufacturing index has also been in negative territory for 10 consecutive months, meaning activity has been contracting.
Some relief might be ahead. The Supreme Court is due to issue a ruling soon on Trump’s ability to impose tariffs under the International Emergency Economic Powers Act.
A decision against the administration could limit his trade powers. But depending on the ruling’s nuance, Trump could retain some leeway. He has also vowed to use other laws to invoke fresh tariffs if he loses in court.
This shouldn’t be a surprise: Trump based his re-election campaign on tariffs and has called himself the “Tariff King,” “Tariff Man,” and “Mr. Tariff” over the years.
Given his tendency to quickly impose tariffs across a broad range of situations, Wall Street may need a new playbook.
“Most economic models don’t quantify the geopolitical and relational damage caused by erratic tariffs on allies,” Erica York, vice president of tax policy at the Tax Foundation, said. “Trump’s tariff policies impose real costs that go far beyond higher taxes and slower GDP growth.”