A few short weeks ago, the U.S. economy seemed to be catching a summer break.
The war with Iran appeared to be waning. Energy markets had started to calm. Prices at the gas pump had fallen, and across the economy, inflation had begun to cool.
It amounted to a welcome respite for American families and businesses, which had weathered more than a year of shocks that began with President Trump’s global trade war.
But the reprieve did not last.
A widening military conflict with Iran entered a dangerous new phase this week, spooking energy markets and sending global oil prices to $100 a barrel. The anxiety spilled into gas prices, which topped $4 a gallon in much of the country, according to AAA. And the tumult coincided with the return of Mr. Trump’s trade brinkmanship, as the White House formalized a slate of new tariffs on dozens of countries on Friday.
The duties apply to some of the largest U.S. trade partners, including the members of the European Union, and they are expected to be the first of more to come. Tariffs are taxes that apply to imported goods, so again the president’s actions threatened to raise costs for some American companies and consumers.
The forces, taken together, complicated the nation’s economic outlook in familiar ways. Once, economists figured that an end to the hostilities in the Middle East would spell a gradual return to normal. Instead, the renewed fighting cast those assumptions into doubt, leaving the nation’s long, hard fight against inflation as vexing as ever.
“The longer the war is in place, at this current level of intensity, the worse it is for consumers,” said Olu Sonola, the head of U.S. economics at Fitch Ratings.
The economic headwinds loomed especially large over Mr. Trump, with less than four months until the midterm elections. Yet at a rally in Marietta, Ga., on Wednesday, the president seemed unfazed by the blowback from the war with Iran, a conflict he has repeatedly downplayed.
Mr. Trump declared that inflation was “way down,” pointing to falling prices in June, before promising that energy costs in particular would “come down, maybe lower than when we even started.”
“But just give me a little time,” he added.
Mr. Trump’s comments framed the stakes for the economy as well as for the Republican Party, with voters growing impatient over the nation’s economic course. Many have told pollsters that they are frustrated with Mr. Trump’s agenda and unhappy with the state of the war.
From the beginning, Mr. Trump has tried to shape the intervention as essential for national security, arguing that he had to prevent Iran from obtaining a nuclear weapon. His economic message has wavered in the process. At various points, he has dismissed the costs of the conflict, mused that the fallout could be far worse and expressed optimism that the United States could absorb any blow.
In many ways, the economy has been resilient, and it could grow 2.3 percent this year, analysts at Oxford Economics estimated this month. The labor market also remains strong, posting slower but steady gains last month.
But inflation remains a scourge that has dragged down Americans’ finances. Despite registering the largest single-month drop in six years, consumer prices overall were still 3.5 percent higher in June than they were a year earlier. That was well above the 2 percent target set by the Federal Reserve.
The White House celebrated the latest inflation data, which arrived precisely as the United States and Iran resumed their hostilities — raising concerns that any improvement could prove short-lived. The expected jump in oil and gas prices quickly followed, as shipping traffic in the Strait of Hormuz again slowed to a crawl.
The turmoil essentially arrested weeks of gradual improvements. Before the uptick in hostilities, retail gas prices had fallen 15 percent and jet fuel had declined 35 percent, compared with highs seen in the spring, according to a report this month from Goldman Sachs. Economists had predicted the drop was poised to push down consumer prices broadly, given that energy affects everything from shipping to fertilizer.
But Goldman Sachs also forecast that a major intensification in the war, one that pushed oil to $100 a barrel, could exacerbate inflation even beyond volatile goods like food and energy in the coming months.
“Volatility and unpredictability is the new normal,” said Atsi Sheth, the chief credit officer for Moody’s Ratings. She said the hostilities affirmed her projection that oil prices would remain high through the year.
In April, when the United and Iran struck their initial cease-fire, Ms. Sheth said, economists foresaw inflation slowly descending from its May high, but settling around 3 percent. Now, she said, the resumption of the war raises a “risk of that trending down not being smooth.”
The consequences of a prolonged return to war could prove wide-ranging, particularly for lower-income Americans, who devote a larger share of their monthly income to energy costs.
If the hostilities cause energy prices to soar for months, one result could be a surge in home heating bills. On Thursday, the National Energy Assistance Directors Association estimated that the average household with oil heat could see costs rise to $1,700 this winter if crude stayed at $100 a barrel.
That is compared with roughly $1,100 last winter, according to the association, which represents state directors for a federal program that helps low-income Americans afford their heating bills. The group asked Congress to approve additional money for the program
The geopolitical discord added to the challenges facing the Federal Reserve, which is set to gather next week. The uncertainty cast fresh doubt on whether policymakers led by Kevin M. Warsh, the Fed’s new chairman, would opt to keep interest rates unchanged in response to inflation.
Even before the war, the Fed had its hands full with the novel issues posed by the rise of artificial intelligence. Central bank officials had also been managing the shocks from Mr. Trump’s global trade war, as his roster of ever-changing tariffs rippled across the economy.
Those tariffs evolved again this week. On Friday, the Trump administration finalized a roster of new taxes on imports from much of the world, the biggest step in the president’s attempt to recreate the tariff scheme that the Supreme Court struck down in February.
Starting at midnight, many imports from more than 80 countries, including Canada, Mexico and the European Union, are subject to taxes of 10 percent or 12.5 percent. The duties, imposed under Section 301 of the Trade Act of 1974, are meant to address unfair trade practices, particularly concerns that those countries have not cracked down on “forced labor.”
Mr. Trump plans to subject additional countries in Europe and Asia to similar duties in the coming months for the overproduction of certain goods. Separately this week, he announced a 50 percent tariff on many goods from Canada, including wine, hockey sticks and paper, claiming that the country discriminated against U.S. industry.
The policies could raise the average tariff rate on imports to 12.8 percent by the end of the year, according to an early analysis by the Yale Budget Lab, which studied the duties previously announced by the administration. (Some of those rates have since changed.) That compared with 9.8 percent if the administration did not act and let an existing 10 percent tariff around the world expire.
For consumers, the changes in tariffs could also translate to real losses. Households could face an average of $1,100 in additional annual costs under the full slate of Mr. Trump’s recent policies, compared with about $550 under current law, the nonpartisan think tank found.
The flurry of new tariff announcements recalled the frenetic early days of Mr. Trump’s second term, when flip-flopping rates often roiled the global economy and complicated matters for businesses.
The courts later blocked the president from using a decades-old law to impose those duties on a whim. That, said Mr. Sonola of Fitch, helped to create a process that could be more predictable, though he noted that Mr. Trump had not yet completed all of his planned duties.
“If we end up being surprised with much higher tariff rates,” Mr. Sonola added, “that will pile on the misery.”
