New U.S. Tariffs Projected to Slow Economic Growth in 2026

The recent announcement of new tariffs by the U.S. government is expected to contribute to a slowdown in economic growth. While the immediate effects on consumers have been limited, uncertainty surrounding these trade policies is dampening business investment. As a result, the economic forecast predicts a gradual deceleration, with more pronounced implications anticipated in the following year.

The economic outlook for the United States shows growth of approximately 1.8% in 2025 and 1.5% in 2026. This slowdown is partially attributed to the implementation of tariffs, which have raised the effective U.S. tariff rate on imports to 19.5% by August 2023, the highest level since 1933. Rising import costs, potential retaliatory measures from trading partners, and adjustments in inventory are all contributing to this evolving economic landscape.

Despite the challenges, the underlying strength of the economy suggests that a recession remains unlikely. Historical data indicates that markets can typically withstand global uncertainties, including trade disputes. Yet, the current situation presents unique challenges that could alter this trend. The tariffs introduced thus far are less severe than initially proposed, but the ongoing uncertainty regarding future tariffs continues to hinder key business decisions.

As the year progresses, the full impact of the existing tariffs is expected to surface, particularly as businesses exhaust their pre-tariff inventory. Notably, potential retaliatory actions from countries like China, which has threatened to restrict exports of rare-earth elements, could lead to significant economic repercussions.

While some sectors have managed to absorb the initial costs of tariffs—thanks in part to advanced purchasing by wholesalers and price reductions from foreign suppliers—the long-term outlook remains uncertain. The strong dollar has temporarily helped cushion the economic blow, but as inventories deplete and the dollar weakens, import costs will rise, exacerbating inflation and affecting the standard of living for many consumers.

The tariffs currently imposed have had a limited effect primarily due to the absence of retaliatory measures and the existence of exemptions and trade agreements. Imports comprise only 11% of U.S. consumption, mitigating the likelihood of drastic price increases. Nevertheless, the prevailing uncertainty is causing many firms to delay investments and hiring. The Federal Reserve is also cautious about lowering interest rates until the inflationary effects are more apparent.

Tariffs introduce additional costs for goods and services crossing borders, ultimately forcing consumers to pay higher prices. This dynamic threatens to undermine economic growth. In 2025, delays in tariff implementation led to companies building inventories and consumers accelerating purchases to avoid impending costs, which temporarily sustained growth. However, the negative impacts of tariffs are expected to become more pronounced in 2026.

U.S. companies have stockpiled foreign-produced goods in anticipation of increased tariffs, initially absorbing the costs. Although businesses may manage higher tariffs in the short term, they will inevitably need to raise prices to offset their costs. The potential for significant price increases poses a risk to consumer spending and could impact businesses reliant on imported components.

Despite the ongoing tariff and policy uncertainties, the U.S. economy has demonstrated resilience thus far. However, if tariffs persist and the labor market cools, the economy may experience a slowdown in 2026. Monitoring consumer spending and business investment will be crucial indicators of economic health moving forward.

According to the OECD, tariffs are either a contributing or causal factor in the anticipated slowdown. The impact of tariffs has been delayed as suppliers have hesitated to pass on increased costs to consumers. Nonetheless, this situation cannot persist indefinitely. President Donald Trump has acknowledged that there will be a period of economic adjustment as the country adapts to these new global trade rules.

Looking ahead, various factors may drive economic growth in 2026, including a major spending bill, stabilized tariff expectations, and renewed consumer activity. Lower interest rates could stimulate both housing and business investment, while midterm elections typically encourage economic optimism. Strong economic fundamentals—such as record net worth, high homeownership and stock ownership rates, rising retail sales, and low unemployment—indicate resilience despite tariff-related challenges.

The third and fourth quarters of 2025 are projected to be robust, but tariffs function as a tax on imports, affecting both finished goods and production inputs. With the effective tariff rate nearing century-high levels, the economic landscape will continue to evolve as businesses and consumers adapt to these changes. The anticipation of new trade policies and the necessary adjustments will play a critical role in shaping future economic development.