Larry Summers Calls Trump Tariffs a ‘Self-Inflicted Wound’ on US Economy

The Trump administration’s tariffs are proving to be a “self-inflicted wound” for the U.S. economy, according to former Treasury Secretary Larry Summers. Speaking in a June 24 fireside chat with Harvard Business Review editor-in-chief Adi Ignatius, the economist and former president of Harvard University argued that the trade policies have triggered a rare and troubling response from the Federal Reserve: simultaneously raising its forecasts for both inflation and unemployment.

“It simultaneously raises prices, increases unemployment, and reduces competitiveness,” Summers said.

When Donald Trump took office in 2016, the average tariff on U.S. imports stood at about 1.5 percent. With the White House’s negotiations underway with major trading partners, Summers estimates tariffs will settle at “13 to 14 percent on average across the board,” which would still be the highest in nearly a century.

These tariff hikes are contributing to a broader slowdown in the global economy. As a result, Most major banks and international institutions have lowered their global growth forecasts for 2025. The World Bank now projects global GDP growth at just 2.3 percent, about half a percentage point lower than expected earlier this year, marking the weakest pace of growth outside of recessions in the past two decades.

Summers also highlighted mounting fiscal concerns in Washington. He criticized Congress’s recent passage of the One Big Beautiful Bill Act, a budget reconciliation package that slashes taxes without equivalent spending cuts. The Congressional Budget Office estimates the legislation will increase the federal deficit by $2.4 trillion over the next decade.

“Running up large deficits and relying on the ability to roll over debt is like wandering across the street in heavy traffic,” Summers said. “The cars may stop, and it may all be okay. But you’re taking a risk that is probably more prudent not to take.”

Rising deficits also raise the government’s interest burden and the risk of default. Moody’s downgraded the U.S. credit outlook last month, citing growing concerns about the national debt.

Summers said that while the U.S. economy faces headwinds, the risk of recession in 2025 is “real” but still “less than 50-50.”

Echoing that sentiment, JPMorgan analysts have pegged the odds of a recession this year at around 40 percent. The bank has cut its U.S. growth forecast to 1.3 percent, down from 2 percent earlier in the year. JPMorgan also warned of an elevated risk of stagflation, a scenario in which slow economic growth and high inflation trap the Fed in a policy dilemma, where raising interest rates curbs inflation but deepens stagnation, while lowering rates boosts growth but worsens price pressures.