A Dangerous & Developing Economic Loop: Stagflation, Tariffs, and the Lessons We’re Ignoring

Stagflation is the economic version of a lose-lose scenario. And now, with tariffs back on the global table, there's a risk that the economy will get even more distorted.

Inflation is still lingering. Unemployment is starting to rise. Growth is slowing. And tariffs are back in full swing.

It’s no wonder the term stagflation — a rare and ugly economic condition — is creeping back into the headlines. And while some pundits are brushing off recession fears, the combination of price hikes, job market softening, and government interference in trade has more and more economists sounding the alarm.

So what is stagflation? Have we faced it before? And most importantly, what can we do to avoid a repeat of the past?

Let’s break it down.

What Is Stagflation?

Stagflation is the economic version of a lose-lose scenario. It happens when three things occur simultaneously:

1. Stagnant or negative GDP growth

2. High inflation

3. Rising unemployment

   
   

Normally, inflation and unemployment move in opposite directions — but stagflation breaks that rule. It’s the worst of both worlds: everything costs more, but fewer people can afford anything.

In the U.S. today, we’re seeing the early signs:

• Inflation is hovering above the Fed’s target (CPI at 2.3% and core CPI at 2.8%)

• GDP contracted by 0.3% in Q1 of 2025

• Unemployment projections are rising through 2027

  
  

And now, with tariffs back on the global table, there's a risk that the economy will get even more distorted.

We’ve Been Here Before

1930s: The Tariff Trap

In 1930, the U.S. passed the Smoot-Hawley Tariff Act, sharply raising taxes on over 20,000 imported goods to "protect" American industry. Instead, it sparked a global trade war. Countries retaliated, world trade collapsed, and the Great Depression worsened. Sound familiar?

A photograph of Senator Reed Smoot and Representative Willis C. Hawley, the co-sponsors of the act, taken on April 11, 1929.

We’re now watching history rhyme. New tariffs on Chinese goods, especially electric vehicles (EVs), are being implemented under the guise of national security — despite the fact that these EVs are more affordable and often more advanced than their U.S. counterparts.

Here’s the hard truth: if policymakers and corporations didn’t want China to become so dominant, they shouldn’t have spent decades offshoring our manufacturing there. For years, American companies moved operations overseas to cut labor costs and maximize shareholder profits, with no long-term plan for industrial resilience. The result? We hollowed out our own manufacturing sector and helped China become the global leader we now claim to fear.

Now, we’re trying to fix it with tariffs and red tape — which leads to the obvious question:

If capitalists love capitalism so much, why are they trying to block fair market competition now?

This kind of regulatory protectionism is the opposite of free-market capitalism. The market is speaking — consumers want affordable, high-quality EVs — but rather than rising to the challenge, we’re shielding domestic producers with artificial barriers.

If you believe in competition, win by building better products — not by banning the other guy from the field.

1970s: Oil Shocks and Stagflation

The U.S. faced true stagflation in the 1970s, driven by Middle East oil embargoes, surging inflation, and a stagnant job market. Prices soared, unemployment spiked, and GDP growth slowed to a crawl. Traditional policy tools didn’t work.

It took Paul Volcker, then Chairman of the Federal Reserve, to crush inflation by raising interest rates to nearly 20%, triggering a recession — but ultimately restoring stability.

After that, the economy bounced back thanks to:

• Lower oil prices

• Deregulation

• Technological innovation, like the personal computer revolution

  
  

The pain was real — but so was the rebound.

1970's: Demonstrators protesting against escalating food prices, a direct consequence of the stagflation era characterized by high inflation and unemployment.

What Can We Learn for Today?

We can’t afford to blindly repeat the past. Here's how we avoid another prolonged downturn — using lessons from history and the tools of the present.

1. Be Smart with Tariffs — Not Destructive or Hypocritical

Blanket tariffs, especially on Chinese EVs, are being justified on nationalistic grounds — but let’s be real: this isn’t about security, it’s about fearing competition.

If the U.S. truly believed in free market capitalism, we wouldn't need to block competitors with red tape. We'd out-innovate them.

Example: Instead of slapping tariffs, we could expand support for U.S. automakers like Tesla, Ford, and GM through:

• Targeted tax incentives

• AI-powered factory upgrades

• Resilient domestic supply chains

  
  

Let’s compete — not retreat.

2. Prioritize Productivity — AI Is the New Revolution

In the 1980s, personal computers helped drag the U.S. out of stagflation by boosting productivity and creating new sectors.

Today, Artificial Intelligence is that same revolution — if we use it right.

Examples:

• A small business using AI for bookkeeping and inventory avoids hiring a full back-office staff.

• A delivery company using AI for route optimization slashes gas bills and speeds up orders.

  
  

But here’s the caveat: AI is a tool — not a replacement for people.

If we unleash AI without training, planning, or compassion, it’ll deepen unemployment and widen inequality — fast.

To use AI responsibly:

• Launch job retraining programs

• Create apprenticeships tied to AI sectors

• Mandate human-centered AI deployment in workplaces

  
  

Like the PC in the '80s, AI can boost productivity — if it enhances workers, not replaces them.

3. Let the Fed Do Its Job — Without Political Pressure

The Federal Reserve’s mission is to balance inflation and employment. That often means making unpopular decisions — but history shows it’s effective when left alone.

Historical example: In the early ‘80s, Paul Volcker raised interest rates aggressively to crush inflation. It triggered a recession — but stabilized the economy and led to long-term growth.

Today, the Fed faces a similar balancing act. If tariffs spike prices, rate hikes may be necessary again — even if painful in the short term.

Economic healing takes discipline. Don’t let politics get in the way of policy.

4. Modernize Our Safety Net — Focus on the Next Generation

Every time there’s a crisis, the biggest bailouts go to banks, corporations, or seniors. Meanwhile, Gen Z and Millennials are stuck with:

• Sky-high rent

• Massive debt

• Precarious jobs

  
  

This time let’s flip the script. We need a bottom-up recovery.

Example reforms:

• Renter tax credits for those spending 30%+ of income on housing

• Down payment assistance for under-40 first-time buyers

• Free or low-cost community college + apprenticeship programs tied to industry needs (like the CHIPS Act)

  
  

Let’s support the people trying to get in the game, not just those who already won it.

This Is Our Moment to Get It Right

We’ve seen where blind nationalism, runaway inflation, and neglecting the next generation can lead. The 1930s and 1970s taught us that fear-based economics can backfire fast.

This time, we’ve got better tools — AI, global networks, and lessons learned.

But if we ignore them?We risk repeating history — and it won’t be kind.

Gen Z, don’t sleep on this.

We have the most to lose — and the most to gain — by paying attention now.