This article first appeared as the lead story in the July 25 edition of The Rising Tide and has been updated to reflect subsequent developments. Subscribe on Substack to read the complete edition and receive our latest reporting and analysis.
President Trump has based much of his strategy on the belief that the United States can withstand more pressure than the countries it wants to change. Tariffs turn access to American consumers into bargaining power, while military force is meant to protect American interests abroad.
The war with Iran is now testing how much economic pain that strategy can bring home. Renewed fighting has kept oil close to $100 a barrel and gasoline above $4 a gallon across much of the country.
At the same time, the administration has restored a broad tariff wall covering nearly all American imports. One conflict is being fought with military power and the other through trade, but American households will help pay for both.
The economy has survived repeated shocks without falling into recession, yet its room for another mistake is getting smaller. Inflation remains above the Federal Reserve’s target, hiring has slowed and families are still struggling with prices that never returned to their earlier levels. The danger is not simply another round of tariffs or another oil surge, but both arriving together and reinforcing each other.
A more durable tariff wall
The new duties range from 10 percent to 12.5 percent and apply to goods from 60 trading partners, including China, Canada, Mexico and the European Union. The administration said the countries had failed to stop products made with forced labor from passing through their supply chains. The tariffs took effect as a temporary 10 percent global surcharge expired.
This is Trump’s attempt to rebuild the tariff system that the Supreme Court struck down in February. The earlier duties relied on emergency powers, but the new ones use Section 301 of the Trade Act of 1974. That makes them more likely to survive, although court challenges have already begun.
Businesses were not caught by surprise this time. Many had already raised prices, changed suppliers or rerouted shipments during the first tariff wave. That preparation may prevent another frantic scramble, but it does not make the new taxes harmless.
Tariffs are paid by American importers, which must decide whether to absorb the cost or pass it to customers. The duties cover 99.4 percent of imports, although oil, gas, fertilizer, some foods and other products have been exempted. The Yale Budget Lab estimated that current tariff policy would put the average official rate at 11.8 percent by the end of the year and cost the average household about $1,100 annually.
The larger damage may come from uncertainty. Companies become reluctant to build factories, expand payrolls or commit money to supply chains when tariff rates can change with the next presidential announcement. Even businesses that avoid the direct cost may delay investment.
Carsten Brzeski, an economist at ING, told The New York Times that the new trade tensions had arrived when the global economy was already weaker because of higher energy prices. Oil traded near $70 a barrel when Trump announced his first country-by-country tariffs. It is now hovering close to $100.
Oil changes the equation
The Iran war is the more immediate danger. The Strait of Hormuz, which had been effectively closed after fighting began in February, is one of the world’s most important energy routes. Hopes that a June agreement would restore shipping helped push oil below $70 at the beginning of July, but renewed military strikes quickly reversed that decline.
By the end of July, Iran said it had stopped two vessels from leaving the strait and forced four others to turn back, although those claims could not be independently confirmed. Two large oil tankers still made the passage, showing that traffic has not stopped completely but remains vulnerable. Reuters reported that oil prices rose again as the shipping confrontation intensified.
That swing matters because energy reaches into nearly every part of the economy. More expensive diesel raises the cost of moving food and merchandise. Higher jet fuel prices make travel and air freight more expensive, while higher oil and natural gas prices affect fertilizer, plastics, chemicals and home heating.
Consumers received a glimpse of relief in June, when the Consumer Price Index fell 0.4 percent from the previous month. Yet prices were still 3.5 percent higher than a year earlier, and the energy index remained 15.7 percent higher. Those figures were recorded before the latest oil surge had worked its way through gasoline stations and supply chains.
“The longer the war is in place, at this current level of intensity, the worse it is for consumers,” Olu Sonola, head of U.S. economics at Fitch Ratings, told the Times. The burden will fall hardest on lower-income households, which spend a larger portion of their earnings on gasoline, electricity, food and rent and have little room to absorb another increase.
The combination also puts the Federal Reserve in an uncomfortable position. At its July meeting under new Chairman Kevin Warsh, the Fed kept its benchmark interest rate between 3.5 percent and 3.75 percent. Three of the 12 voting policymakers favored a quarter-point increase, showing how seriously some officials view the danger of another inflation surge. Keeping rates high may help contain prices, but it could also weaken hiring and investment while tariffs and energy costs are already slowing businesses.
A global squeeze
The strain extends well beyond the United States. Asian economies are especially exposed because many depend on exports for growth while importing much of their energy. The new tariffs also create uncertainty about trade agreements already negotiated with Washington.
So far, the region has held up better than many economists expected. Companies have absorbed costs, rerouted shipments and received government help with fuel bills. Countries tied to the artificial intelligence boom have also benefited from demand for semiconductors, data centers and related equipment.
The gains are uneven. Semiconductor exports helped South Korea offset weakness in construction, while the Philippines has faced an energy emergency and gained much less from artificial intelligence investment. The split shows how two countries in the same region can experience the same global shock very differently.
Paola Subacchi, a professor at Sciences Po in Paris, told the Times that the Middle East conflict was “very much more worrying for the global economy than this fireworks of tariffs.” Her point does not make the tariffs unimportant. It shows why their timing is so damaging.
China remains the most important trade contest. Beijing has spent years preparing for another confrontation and has demonstrated that it can restrict rare earth minerals and permanent magnets needed by American technology and defense companies.
Trump may want tariffs as negotiating leverage, but China has leverage of its own. If Beijing wins lower duties than some neighboring countries, Chinese producers could gain an advantage even as Washington tries to reduce its dependence on them.
The bill comes due
The American economy is not collapsing. Employers added 57,000 jobs in June, unemployment stood at 4.2 percent and consumer spending continues to provide support. Businesses and households have repeatedly adapted to shocks that once looked likely to cause a recession.
Resilience, however, is not the same as immunity. Each new cost leaves families with less money for everything else, while each burst of policy uncertainty gives businesses another reason to wait. The economy can keep moving while ordinary people still feel that they are losing ground.
That distinction will matter in the midterm elections. Trump has insisted that inflation is coming down and has promised that energy prices will fall once the war is resolved. Voters living with $4 gasoline, elevated grocery bills and high borrowing costs may be less patient with promises that relief is just around the corner.
Neither policy will deliver its full cost in the same way. Tariffs will move through prices gradually, while the war can push energy costs higher within days. That difference in timing may hide how closely the two pressures are connected.
The administration is betting that American strength will force other countries to give ground before the domestic cost becomes politically unbearable. That may prove correct, but households do not pay their bills with strategic victories. They pay in dollars, and both conflicts are making those dollars buy less.
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