Article by: Elliott Lipinsky

Stagflation is the dreaded mix of stagnant economic growth and rising prices, and it is no longer just a ghost from the 1970s. Signs of its return are creeping into today’s economy. Growth has started to slow, yet prices keep climbing. One primary reason for these troubling twin trends is President Trump’s recently enacted tariffs, which sparked the new trade war. As investors, we need to understand how these policies could fuel stagflation and consider how to protect our portfolios if this economic malaise takes hold.

For decades, Americans enjoyed relatively stable growth with low inflation. However, the landscape changed when the U.S. launched aggressive tariffs on imports under the Trump administration. The intent was to protect domestic industries and shrink the trade deficit. Instead, these tariffs act like a tax on American consumers and businesses. When imported steel, electronics, or everyday goods become more expensive due to duties, companies either absorb higher costs or pass them to consumers.

In short, tariffs push inflation up while pulling economic growth down, a recipe for stagflation. The idea behind the tariffs was to correct “unfair” trade imbalances. The president often pointed to the U.S. trade deficit as evidence that other countries were taking advantage of us. But viewing trade as a zero-sum scorecard is misleading.

Consider my fun and simple analogy: I run a perpetual trade deficit with my local grocery store. Every week, I buy groceries from them, and they never purchase anything from me. By the numbers, I’m losing in this exchange. The dollars keep flowing one way to the store. Yet this transaction clearly benefits me: I get groceries and necessities for my young family, and the store gets revenue. I would be foolish to demand the store buy some of my household items just to balance the ledger, or to stop shopping there because of this so-called deficit.

In the same way, America’s trade deficit with China means we receive phones, televisions, clothing, and countless other useful goods in exchange for our dollars. Both sides gain from voluntary trade. Imposing tariffs to force a balance is as counterproductive as charging myself extra for groceries to even things out. I’d just end up paying more without getting any richer. This grocery store analogy highlights why tariffs are an economic self-inflicted wound.