President Trump’s trade war is raising taxes and slowing growth, but we aren’t headed for a recession.

Higher tariffs on steel, aluminum and automotive products, special levies on China, Canada and Mexico and broad reciprocal tariffs on other countries have raised the average effective rate on all imports from 2% to 19%.

Although reciprocal tariffs imposed under the International Emergency Powers Act face a questionable future in the courts, the president has other options to maintain those.

Negotiations with China and most other trading partners won’t quickly result in comprehensive trade agreements, and the deals with the UK, EU, Vietnam and others didn’t alter tariffs much.

Consequently, high tariffs are likely the remainder of Trump’s second term.

If sustained, those could bring in $3 trillion in new revenue over the next decade. That would roughly offset the deficit increasing effects of the president’s spending initiatives and tax cuts beyond renewing the 2018 Tax Cut and Jobs Act.

Large federal deficits and growing national debt are a problem, but Trump’s overall tax and spending policies won’t much alter President Biden’s trajectory.

In 2025, Trump’s tariffs are slowing growth, because those and some of his spending cuts bite this year, whereas the tax cuts won’t boost workers’ take home pay until 2026.

So far, tariffs haven’t been highly visible. Inflation has ticked and should accelerate by fall.

When the president boosted tariffs on washing machines in January 2018, the Consumer Price Index for laundry equipment showed little effect in February and March and then jumped 11% by May.

As inflation accelerates, consumers will borrow more or spend less. Likely, it will be some of each, as banks are preparing for more losses on credit cards and other loans.

In January, economic forecasters were predicting 2% GDP growth for this year, but it should slow in the second half and average about 1.5% for all of 2025.

The conventional thinking is that the Federal Reserve could lower interest rates to give home builders, debt-burdened consumers and overall economic growth a boost but at the expense of stoking inflation. However, the Fed could be mostly powerless.

From September to December last year, the Fed cut the federal funds rate—the overnight rate that banks pay to borrow funds—a full percentage point, but the rate on 10-year Treasury bonds jumped from about 3.6% to 4.6%.

The 10-year rate is the benchmark for most borrowing throughout the economy. Even as the Fed cut the overnight rate last fall, the rate on 30-year mortgages jumped about a percentage point too.

With the economy near full employment, a peacetime federal deficit exceeding 6% of GDP is unprecedented. Treasury borrowing requirements are overwhelming anything the Fed could do.

With fiscal and monetary policy essentially in neutral, the consequences of Trump’s tariffs are largely supply side and difficult to sort because businesses are so uncertain about future trade policies.

It’s one thing to say that the average tariff on imports will stay at 19%, but it’s another to know what rates will be charged on specific products from various jurisdictions.

With more certainty, businesses could more cost efficiently adjust supply chains—for example, invest more to source from Vietnam, Mexico and U.S. factories and less from China. But early episodes with items as simple as children’s toys indicate that finding new suppliers can take months.

Parents will face fewer choices, shortages and higher prices filling Christmas stockings, and similar frustrations will repeat throughout the economy.

For complex products like automobiles and cell phones, building new manufacturing capacity can take years.

The best clarity business may assume is that Trump’s tariffs will stay mostly as they are. That realization will come slowly, and business investment outside hot artificial intelligence related activities will recover but haltingly.

GDP fell -0.5% in the first quarter, because imports surged in March ahead of the Liberation Day tariffs. That reversed in the second quarter.

Tariffs are burdening demand this summer and fall but not enough to drag the economy into a recession.

Inflation will surge above 3% and then subside as we move through 2026 if the Fed doesn’t enable reckless federal deficits by slashing interest rates.

Next year, the economy will be back on track. The hit to growth and purchasing power from tariffs will prove a one-time adjustment, as we learn to live with Trump’s protectionism.

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Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.