Steve Forbes from Forbes Media recently discussed on the “Big Money Show” the global implications of increasing trade tensions between the U.S. and China.
The economic worries stemming from President Donald Trump’s tariffs on U.S. trading partners have led to fears that the economy could face stagflation if these conditions persist.
Stagflation is a term often used to depict a situation where high inflation coincides with stagnation in economic growth, leading to rising consumer prices, a weak labor market, and possibly higher unemployment.
Tariffs, essentially taxes on imported goods, are typically borne by importers, who may pass some of these costs onto consumers. This dynamic has led to renewed concerns about inflation. Recent surveys show that consumer inflation expectations have increased, likely in anticipation of tariff-induced price hikes on various consumer products.
Additionally, last week’s economic data heightened concerns about the possibility of stagflation. According to data from the Commerce Department, U.S. gross domestic product (GDP) decreased at an annual rate of 0.3% in the first quarter of 2025.
The U.S. economy has notably contracted, decreasing by 0.3% in the first quarter.
“This type of data won’t necessarily reassure the market. It serves as a warning signal of possible stagflation for the economy. Today’s weak GDP can either indicate companies preemptively adjusting to tariffs or signal broader economic concerns,” said Ellen Zentner, chief economic strategist at Morgan Stanley Wealth Management, recently.
David Bernsen, managing partner and chief investment officer at the Barnsen Group, noted that navigating this stagflation environment presents challenges for the Federal Reserve, especially as the central bank seeks to balance the dual goals of maintaining price stability and maximizing employment.
The U.S. trade deficit reached a record high in March.
“In essence, there’s not much central banks can do if stagflation occurs since the inflation is not primarily due to financial factors,” explained Bernsen. “Instead, high prices may stem from external pressures linked to tariff policies and rising input costs beyond the scope of central bank control.”
He also mentioned that he anticipates the Trump administration might eventually roll back many tariffs, alleviating price increases, but the unpredictability of the timeline and extent of such policies could cause companies to hesitate in making investments while they seek clarity.
“I doubt these price increases will last forever, especially since I believe the Trump administration will backtrack on most tariffs,” he stated. “However, a more pressing question is the extent of the economic slowdown due to these policies.”
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“That’s my main concern, but I don’t have a clear answer. It’s hard to predict if all tariffs will be rolled back immediately,” Bernsen added. “The scale and duration of the economic impact directly relate to the level of uncertainty that persists, which we can’t clarify right now.”
