Stagflation Shadows: The Tariff Fallout Facing the U.S. in 2025

The ink’s barely dry on the Trump administration’s reciprocal tariffs, launched on April 2, 2025, and already the economic horizon looks murky. Dubbed “Liberation Day” by the White House, these measures—matching tariffs on over $1.5 trillion in imports from countries taxing U.S. goods—promised a renaissance for American industry. At Vorpp Capital, we’re not so sure it’s that simple. Instead, we see a storm brewing: stagflation, that nasty mix of rising prices and a sluggish economy, looming as a likely outcome for 2025. It might be temporary, a painful hiccup until businesses adjust, but it could also drag on if Trump’s vision of U.S.-centric investment and production doesn’t pan out. This article dives into how these tariffs could spark stagflation, why it’s a real risk in the short to mid-term, what happens if the U.S. doesn’t get its hoped-for wins, and how investors might navigate it. We’ll also unpack what stagflation really means and spotlight assets that could shine in this mess. Buckle up—it’s a bumpy ride ahead.

Stagflation: What It Is and Why It Matters

Stagflation is an economic beast—high inflation paired with stagnant growth and, often, rising unemployment. It’s the worst of both worlds: prices climb, but the economy doesn’t, leaving consumers squeezed and businesses stuck. Economists first grappled with it in the 1970s, when U.S. inflation hit 12% while GDP growth flatlined and unemployment topped 9%, per Bureau of Labor Statistics (BLS) data. Traditional fixes—rate hikes to curb inflation or stimulus to boost growth—don’t work smoothly here; one problem flares as the other cools.

For 2025, stagflation’s shadow looms because tariffs disrupt the usual playbook. Inflation’s already at 3% (January BLS figures), and GDP growth’s slowing to 1.5%, per IMF forecasts. Add Trump’s tariffs—20% on EU imports, 60% on Chinese goods, 25% on Canadian steel—and you’ve got a recipe for higher costs without the growth to match. At Vorpp Capital, we see this as a plausible near-term reality, not just a buzzword. Understanding it is step one to surviving it.

The Tariff Trigger: How Stagflation Takes Root

The April 2 tariffs hit like a sledgehammer—$1.5 trillion in imports from China, the EU, Canada, and beyond now carry duties mirroring their taxes on U.S. goods. Trump’s goal is clear: force companies to invest in U.S. production, cut the $1.2 trillion goods deficit, and slash government spending. The markets reacted: S&P down over 10%, the NASDAQ down 11% in two days. But the road to that outcome is paved with short-term pain, and stagflation looks like the toll.

Higher Tariffs, Higher Prices

Tariffs are taxes on imports, paid by U.S. businesses—importers like Walmart or Ford—before goods hit shelves. In the short term, before companies can shift production stateside, these costs pile up. Take German cars: a 25% tariff on a $50,000 Mercedes adds $12,500, likely passed to buyers. S&P Global estimates a 0.7% CPI jump from China, Canada, and Mexico tariffs alone; factor in EU duties (20-25%), and inflation could top 3.5% by Q3 2025. Businesses don’t eat this—they raise prices. Consumers feel it—$409 million daily, per Trade Partnership Worldwide—and that’s before supply chains fully adjust.

Consumer Confidence Tanks

Higher prices don’t land in a vacuum. The University of Michigan’s Consumer Sentiment Index plunged 10 points to 65 in March 2025, its lowest since 2022, as tariff news sank in. People aren’t spending when groceries (20% on Mexican avocados) or electronics (60% on Chinese chips) cost more. Retail sales, up 2% in 2024, are projected to stall at 0.5% this year, per Deloitte. Less spending slows growth—retail’s 6% of GDP—and feeds the stagnation half of stagflation.

Economic Slowdown Accelerates

The economy’s already cooling—GDP growth at 1.5% reflects Fed rates at 4%, a strong dollar, and softer exports ($200 billion hit by March 2025, per Commerce). Tariffs double down: importers cut orders, manufacturers delay expansion amid uncertainty, and jobs falter. Tax Foundation models suggest 223,000 job losses from Canada/Mexico tariffs; add EU and China retaliation, and it’s 400,000. The March unemployment number supports this thesis. We ticked up slightly to 4.2%. Inflation plus slowdown and rising unemployemtn equals stagflation—a textbook setup unfolding now.

In the short to mid-term—say, six months to two years—this is the most likely path. Prices rise, growth sputters, and confidence erodes. Trump’s betting companies react fast, but history (e.g., 2018’s China tariffs took years to shift supply chains) says it won’t be instant.

The Trump Plan: Temporary Pain for Long-Term Gain?

The administration’s endgame is ambitious: tariffs force firms to build factories in the US (Ohio, instead of Shanghai?), boosting jobs and output while trimming deficits and spending. If this works, stagflation could be a blip—a transitory phase until investments kick in. Imagine GM opening a plant in Michigan to dodge 25% Mexican tariffs, or Apple shifting iPhone assembly from China. U.S. steel production rose 7% after 2018 tariffs, per USGS; this could scale up.

Short-term pain’s the trade-off. Inflation might hit 4% by late 2025, GDP growth dip below 1%, and unemployment nudge 4.5%+ (from 4.2% March). But if factories sprout—say, $50 billion in investments by 2027, per White House hopes—growth could rebound to 2.5% by 2028, inflation ease to 2%, and jobs climb. Stagflation fades as production ramps up. That’s the rosy scenario—temporary turbulence, then triumph.

At Vorpp Capital, we see this as plausible but not guaranteed. Companies need time—five to ten years, not two—to relocate. Incentives (tax breaks, deregulation) must align, and government spending cuts ($1 trillion pledged) must stick without sparking recession. Until then, stagflation’s the bridge we’re crossing.

Meanwhile, we’re potentially witnessing the formation of new global alliances that could undermine Trump’s strategy. Japan, South Korea, and China recently announced a trade agreement focused on semiconductors and other goods, signaling a shift in economic partnerships. The relationship between China and Russia has also strengthened significantly over the past few years, deepening their cooperation. Europe might focus on "europe first" which we can already see with the new defends-deal (made in Europe).

What if these developments lead to the exact opposite of what the U.S. intends? What if countries reject this perceived bullying approach and band together instead? China has already declared intentions to restrict investments into the U.S., raising the stakes further. This sets the stage for a scenario where the U.S. might not achieve its goals, a possibility we need to consider closely.

What If the U.S. Doesn’t Get What It Wants?

Here’s the flip side: what if Trump’s dream stalls? If businesses don’t invest in the U.S.—if GM sticks to Mexico, Apple to China—stagflation doesn’t fade; it lingers. Short-term pain becomes mid- to long-term stagnation, and the U.S. misses the payoff.

• No Investment Surge: Tariffs alone don’t guarantee factories. High U.S. labor costs ($25/hour vs. $3 in China, per BLS), regulatory hurdles, and global supply chain inertia could deter moves. Foreign firms might eat costs or shift to Vietnam, not Ohio. Investment lagged post-2018 tariffs—$30 billion vs. $100 billion hoped, per Commerce—suggesting a repeat risk.
• Retaliation Bites: The EU’s $22.5 billion in tariffs (April 13), Canada’s $20.7 billion, and China’s $28 billion hit U.S. exports—soybeans, autos, steel. Exports drop $50 billion more by Q4, per Citi, slowing GDP further. No U.S. production boom means no offset. Two days after "Liberation Day" China announce a 34% additional tariff on US goods.
• Persistent Stagflation: Inflation stays above 3.5%, growth below 1%, unemployment at 5% into 2026. Consumer prices stick—20% on EU wine, 60% on tech—without jobs to cushion it. The Fed’s trapped: hike rates, growth dies; cut them, inflation spikes.

If the U.S. doesn’t get investment and production, stagflation drags on—two years, maybe five. We at Vorpp Capital lean toward this as a real possibility if global pushback outpaces domestic gains. The short-term hit’s here; the long-term win’s not assured.

Assets That Could Thrive in Stagflation

Stagflation’s brutal, but some assets historically hold up. Here’s what might work in 2025:

• Gold: Inflation hedge, no growth tie—up 15% in 1970s stagflation. At $3,040/ounce (March 2025), it might be a save bet if CPI climbs.
• TIPS: Treasury Inflation-Protected Securities adjust with inflation—4% real yield now. Unlike T-bonds, they keep pace if prices soar past 3%. In article a week ago, we dove into Bonds and how they good have a massive increase since they lagged behind for such a long time.
• Commodities: Oil, copper—up 20% and 10% in 1973-1974 (EIA). Tariffs boost raw material costs.
• Value Stocks: Cheap, cash-rich firms—banks (P/E 12), energy (P/E 11)—outperformed growth in 1970s. S&P’s tech (P/E 30+) falters in slowdowns.
• Real Estate: Tangible, inflation-linked—REITs gained 8% annualized in 1970s (NAREIT). Housing lags, but commercial holds if rents rise.

Stocks overall struggle—S&P fell 48% in 1973-1974—but defensive sectors (utilities, staples) and hard assets shine. Cash at 4% yields loses to inflation; T-bonds at 4.5% lag unless rates drop. Diversify—10% gold, 20% TIPS, 20% value—could weather this. Bitcoin, as a new asset, has yet to establish a track record in such an environment. The last few days while the market crashed, it certainly held up relatively well, which could indicate that also this asset, could hold steady during stagflation.

Final Thoughts: Navigating the Stagflation Risk

Trump’s tariffs, live since April 2, have set the U.S. on a tricky path. At Vorpp Capital, we see stagflation as the likely fallout for 2025—higher prices from 10-60% duties, a slowing economy at 1.5% growth, and consumer confidence in the gutter. It might be temporary—a rough patch until companies build in the US, delivering Trump’s vision of U.S.-made everything. But if that doesn’t happen, if investment stalls and retaliation bites, we’re looking at prolonged pain—stagflation sticking around into 2026 or beyond. The stock market’s 400% run since 2009 feels distant now; 2025’s uncertainty could keep the S&P shaky. Assets like gold, TIPS, and value stocks might be the play—steady returns in a storm. Tariffs aimed to liberate, but they’ve unleashed a beast. Investors, take note—this isn’t a drill.

Do not consider this article as financial advice. We only showcase our own opinion. Always do your own due diligence before investing in alternative (volatile) investment opportunities.