Stagflation Risks Under Trump Policies: Inflation Up, Growth Stagnant in Key Sectors

A Familiar Economic Threat Returns

The specter of stagflation—a toxic mix of high inflation and weak growth—has re-entered the national conversation under President Donald Trump’s economic policies. While the White House continues to emphasize job creation and manufacturing revitalization, a closer look at data from Columbia Business School’s exclusive economist panel suggests that tariff-driven cost pressures may already be sowing the seeds of an uneven, fragile recovery.

Tariffs and Their Ripple Effects

Central to the stagflation risk are Trump’s aggressive tariff policies on steel, aluminum, and imported consumer goods. An original econometric model presented at Columbia shows that tariffs contributed to a 1.7% increase in consumer prices across core goods in the past 12 months, while growth in key industries has stalled.

The model simulated various tariff scenarios, revealing that:

• Auto manufacturing in the Midwest is facing rising input costs, slowing production even as consumer demand weakens.

• Agriculture exports, especially soybeans and corn, have declined due to retaliatory tariffs, hitting farm incomes in Iowa and Nebraska.

• Energy and construction in Sun Belt states have grown modestly, but rising steel and equipment costs are eroding margins.

The net effect: inflationary pressures without corresponding output gains—classic stagflationary dynamics.

Exclusive Economist Panel Insights

At a Columbia roundtable, three leading economists weighed in on the risks.

• Dr. Elaine Fong, international trade specialist: “The tariff structure has created artificial scarcity. U.S. producers may benefit temporarily, but the broader consumer economy pays the price through higher inflation.”

• Prof. Michael Reyes, macroeconomist: “Our simulations show a 42% probability of a mild recession by late 2026 if tariffs remain at current levels. That’s not doomsday, but it’s significant.”

• Dr. Carla Vasquez, labor economist: “Wage growth isn’t keeping up with rising prices, especially in service-heavy regions. That mismatch creates discontent at the household level and strains small businesses.”

Their warnings point to a potential policy tradeoff—protectionist wins at the expense of macroeconomic stability.

Simulating Recession Probabilities

Using a proprietary recession probability model built on Federal Reserve data, Treasury yields, and Columbia’s tariff-adjusted inflation indices, the forecast shows:

• Base case (current tariffs): 42% probability of recession within 18 months.

• Escalation scenario (additional tariffs on consumer electronics): 57% probability of recession within two years.

• De-escalation scenario (tariff rollbacks with trade negotiations): 21% probability of recession, with inflation falling back under 3%.

This simulation offers one of the clearest quantifiable warnings yet about the trade-off embedded in current economic policy.

Voices from the Ground

For families and businesses, stagflation isn’t an abstract concept—it’s a lived reality.

In Cleveland, Ohio, an auto parts supplier has cut shifts due to rising steel costs. “We thought tariffs would protect us,” said operations director Mark Phillips. “Instead, they’re making our inputs more expensive while customers buy less.”

Meanwhile, in Phoenix, Arizona, construction firms are caught between steady housing demand and soaring costs for imported equipment. “Margins are razor-thin,” said contractor Laura Gutierrez. “If inflation keeps up, even strong markets will cool.”

These perspectives mirror the economist simulations: localized inflation without proportional growth.

Political and Policy Implications

The stagflation debate is not only economic—it’s political. With the 2026 midterms approaching, Democrats are seizing on rising grocery and energy prices as evidence that Trump’s trade-first approach has backfired. Republicans, by contrast, frame the tariffs as long-term investments in national security and industrial independence.

The Federal Reserve, caught in the middle, faces its own dilemma: tighten rates to curb inflation and risk slowing growth further, or ease policy and risk entrenching price pressures.

What to Watch Next

The next six months will be critical. Analysts point to three indicators that will determine whether stagflation becomes entrenched:

1. Core inflation trends—particularly in food and durable goods.

2. Wage growth relative to inflation, especially in service-heavy states.

3. Trade negotiations with the European Union and China, which could either de-escalate tariff wars or worsen them.

If these trends move in the wrong direction, the U.S. economy could face the first sustained stagflationary period since the 1970s.