New research by Ernie Tedeschi, the director of economics at the Budget Lab at Yale and a chief economist at the White House Council of Economic Advisers under the Biden administration, underscores the linkage between government indebtedness and higher inflation.

“When you deficit finance policies, that is going to put upward cost pressure on American households,” Mr. Tedeschi said in an interview. Deficit financing involves using borrowed money to pay for government spending, like tax cuts and other policies.

As the recent pandemic era showed, the generous fiscal stimulus programs spearheaded by the Trump and Biden administrations stoked demand at a time when supply chains were severely constrained, ultimately heating up inflation. The Federal Reserve was then forced to take aggressive action by raising interest rates, further increasing the costs born by households.

Mr. Tedeschi estimates that a sharp rise in the deficit of around 1 percent of gross domestic product — roughly the same cost of extending the tax cuts Republicans are eyeing before they expire this year — would lower the purchasing power of American households as much as $1,250 on average after five years.

If the Fed were to respond to rising price pressures by increasing interest rates, that is likely to feed through to not only higher mortgage payments, but also those related to automobile loans and those for small businesses. Mortgage payments alone could rise as much as $1,240 per year in today’s housing market, he found.

After 30 years, the cumulative loss per household from price pressures could reach $16,000. Household wealth, once adjusted for inflation and factoring in higher mortgage costs, could decline as much as $36,000 on average.

Mr. Trump and his top economic advisers have made reining in government spending a cornerstone of the administration’s economic agenda, with Treasury Secretary Scott Bessent recently calling for a “detox” from government spending.

But economists are skeptical about how much progress the president will make, especially given the haphazard nature so far of the cuts spearheaded by Elon Musk and his Department of Government Efficiency.

The Republican budget plan recently approved by the House calls for $2 trillion in spending cuts but $4.5 trillion in tax breaks.

“If you are truly worried about debt and deficits for debt and deficits’ sake, then you really need to be just as worried about revenues,” Mr. Ernie said “As in, don’t cut taxes.”

The second wave is still being figured out, though the list of products that could be affected is already public — and is 99 pages long. In that phase, the E.U. is planning to add levies to goods worth about 18 billion euros, or 19.6 billion dollars, and is aiming for them to go into effect on April 13.

The proposed goods include:

• Poultry, beef and pork

• Soybeans

• Wine and sparkling wine

• Beer

• Pants, shirts and other clothing

• Handbags

• Refrigerators

• Washing machines

• Mowers

Exactly what those tariffs will look like remains to be seen. For now, Europe is consulting consumers, companies and policymakers across the 27-nation bloc as it finalizes the list. Many of the potential targets are largely produced in Republican-held areas, such as crops from the Louisiana district that elected Mike Johnson, the House speaker, and livestock from Nebraska and Kansas.

The goal? Officials want to hit America where it hurts in order to force the United States to the negotiating table, while doing as little damage as possible to Europeans.

Mr. Starmer said in parliament that he was “disappointed” by the global tariffs on steel and aluminum but Britain would take a “pragmatic approach.” A new trade deal would include tariffs, he added, and Britain would “keep all options open.”

But Mr. Starmer believes that he can ultimately persuade Mr. Trump that Britain’s trade relationship with the United States is balanced.

Britain runs either an $89 billion trade surplus or a $14.5 billion deficit with the United States, depending on whether one cites British or American statistics. The difference rests in part on how the two sides treat offshore financial centers such as Jersey and Guernsey, which are crown dependencies.

“He was working hard, I’ll tell you that,” Mr. Trump said, after Mr. Starmer lobbied him against tariffs at a White House meeting late last month. “He earned whatever the hell they pay him over there.”

Mr. Starmer has also been pushing Mr. Trump to provide American security guarantees to Ukraine as part of a peace negotiation with Russia. The two leaders have spoken regularly by phone since their meeting, as Mr. Starmer has tried to help heal Mr. Trump’s rift with President Volodymyr Zelensky of Ukraine.

But Britain’s decision not to retaliate to the tariffs could complicate Mr. Starmer’s other big priority: to draw his country closer to the European Union after Brexit. The crisis over Ukraine has given the prime minister a chance to collaborate with the European Union on defense and security, and he clearly hopes it could lead to closer trade and economic links.

The divergent responses to the tariffs are a reminder that, in some respects, Britain still faces a choice between the United States and Europe.

The rise in stock prices reversed some of the losses from earlier in the week and came after another turbulent trading day on Wall Street, when the White House introduced and then rolled back some of its tariffs. The whipsaw on trade policy has added to investors’ confusion over the Trump administration’s economic plans, and the path ahead on interest rates set by the Federal Reserve.

Recent waves of selling had pushed the S&P 500 index down nearly 10 percent below its mid-February record. Falling more than 10 percent would signify a symbolic milestone known on Wall Street as a correction.

The Euro Stoxx 50 index, which comprises the eurozone’s largest listed companies, was up more than 1 percent on Wednesday. Shares in Britain, Germany and France all broadly gained.

In Asia, stock markets in Japan, South Korea and Taiwan nudged higher. Those indexes were seen as among the most exposed if President Trump broadened tariffs on longstanding trading partners. Hong Kong’s Hang Seng Index, a market that had been a bright spot in Asia, fell nearly 1 percent, a fourth straight day of decline.

As Asian and European markets seemed to regain their footing on Wednesday, the European Union said it was implementing tariffs in retaliation to Mr. Trump’s 25 percent duty on steel and aluminum imports, which went into effect earlier in the day.

The European Commission called the U.S. tariffs on steel and aluminum “unjustified.” It said it would impose levies on a wide range of American goods that would take effect on April 1. Ursula von der Leyen, the president of the European Commission, said the tariffs were nearly equal in value to the metals duties being applied by the Trump administration.

“Uncertainty breeds volatility,” said Alan McKnight, chief investment officer at Regions Bank. “Right now the level of uncertainty continues to ratchet up.”

The CBOE’s Vix volatility index, known as Wall Street’s fear gauge, has risen in recent days, a sign of investor jitters.

“Investors are having a tough time discerning what they should expect on a go-forward basis,” Mr. McKnight said. “It’s not just about it being good or bad. It’s about getting some clarity.”

The volatility is extending to how foreign investors are moving money in and out of markets in Asia. Khoon Goh, head of Asia Research at Australian bank ANZ, said foreign investors are turning “cautious” because of uncertainty regarding U.S. trade policy.

“Rising investor concerns over the impact of tariffs on U.S. growth is spilling over into Asian equities,” Mr. Goh wrote in a report.

Shares in Australia fell for a second straight day after the White House ruled out any exceptions or exemptions on its steel and aluminum tariffs. Last month, Mr. Trump said he would give “great consideration” to exempting Australia because it buys more goods from the United States than it sells. During Mr. Trump’s first term, he exempted Australia from steel and aluminum tariffs.

Anthony Albanese, Australia’s prime minister, said he would not impose reciprocal tariffs because they would only hurt Australian consumers by pushing up prices. But he condemned tariffs as an economic policy, calling them “a form of economic self-harm and a recipe for slower growth and higher inflation.”

The “core” measure of inflation, which strips out volatile food and fuel prices to give a better sense of the underlying trend, also ticked lower. The index rose 0.2 percent compared to the previous month, or 3.1 percent from a year earlier. Both were below January’s increase.

The data from the Bureau of Labor Statistics underscored the bumpy nature of the Fed’s progress toward its 2 percent goal. Prices for consumer staples, such as eggs and other grocery items, are rising steeply again, but costs for other categories like gasoline fell. A 4 percent drop in airfares in February was a primary driver of the better-than-expected data.

Egg prices rose another 10.4 percent in February, as an outbreak of avian influenza continued to exacerbate a nationwide egg shortage. Prices for eggs are up nearly 60 percent since last year. Food prices more broadly rose 0.2 percent, or 2.8 percent compared to the same time last year.

The cost for used cars also rose 0.9 percent in February, although new vehicle prices declined slightly. Car insurance, which was a huge driver of the index’s unexpectedly large increase in January, rose again, but at a much slower pace of 0.3 percent. It is up just over 11 percent over the past year.

Housing-related costs also notched the smallest 12-month gain since December 2021, with the shelter index up 4.2 percent. Between January and February, it rose 0.3 percent.

The big question mark is when Mr. Trump’s tariffs will start to affect consumer prices in a more noticeable way. The only tariffs in place during the period covered by the February data were the initial 10 percent levies that Mr. Trump imposed on Chinese imports. Ryan Sweet, chief U.S. economist at Oxford Economics, said there was not a “discernible impact on the C.P.I. in February, including for apparel, furniture and electronic prices.” Rather, he expects the levies on China, which were doubled earlier this month, along with the other tariffs that Mr. Trump is now putting in place, to start to lift consumer prices over the next few months.

Peter Tchir, head of macro strategy at Academy Securities, said the biggest effect will likely show up in the months ahead if Mr. Trump follows through with reciprocal tariffs on trading partners. The president has threatened to lift U.S. tariffs to match what other countries charge on imports, which could raise the cost of products that Americans buy from overseas.

Beyond possible price increases, Mr. Tchir said he was very concerned about the outlook for the economy as a result of tariffs and the administration’s plans to slash government spending.

“The growth scare is real,” he said.

Uncertainty about the trajectory of the president’s policies have also amplified fears that businesses will begin to freeze hiring and investment in a more significant way as they await clarity on the scope and scale of Mr. Trump’s plans.

Those concerns have also materialized in recent measures tracking how consumers feel about the future. According to the latest survey from the Federal Reserve Bank of New York, consumers’ expectations about their financial situation in the year ahead “deteriorated considerably,” as they braced for inflation sticking to around 3.1 percent. The share of consumers now expecting to be in a worse situation financially a year from now rose to its highest point since November 2023. The average perceived likelihood of missing a future debt payment rose to the highest level since April 2020.

A combination of slowing growth and resurgent price pressures puts the Fed in a difficult position, given its mandate to pursue low, stable inflation as well as a healthy labor market.

As of January, Fed officials justified their ability to hold off on another round of interest rate cuts and wait for more progress on inflation because the economy was doing well. If that resilience starts to show signs of cracking before inflation is fully vanquished, the Fed may be more limited in how it responds.

When the Fed had to deal with a trade war during Mr. Trump’s first term, it lowered interest rates by a total of three-quarters of a percent in 2019 in an effort to protect the economy from weakening further.

In his most detailed comments yet about Mr. Trump’s tariffs, Jerome H. Powell, the Fed chair, acknowledged last week that the economic backdrop this time was different. “We came off a very high inflation and we haven’t fully returned to 2 percent on a sustainable basis,” he said at an event on Friday.

Mr. Powell added that the Fed’s typical response to tariffs would be to “look through” any one-time increase, but stressed that officials would be watching for any shocks and how long-term inflation expectations were shifting. “As we parse the incoming information, we are focused on separating the signal from the noise as the outlook evolves,” he said. “We do not need to be in a hurry, and are well positioned to wait for greater clarity.”

That suggests the Fed will extend its pause on rate cuts when officials gather next week, maintaining the current range of 4.25 to 4.5 percent.

Traders in futures markets are betting that the Fed will be able to cut rates three times this year, each by a quarter of a point. That is more cuts than predicted just a couple of weeks ago, reflecting rising anxiety about the economic outlook.

Many auto industry executives believe that the merger could have increased competition and supply in the American steel industry, ultimately lowering steel prices.

In the United States, U.S. Steel and Cleveland-Cliffs are the only major American producers of the high-finish steel favored by automakers. Cleveland-Cliffs has long sought to acquire its rival, but such a merger has raised concerns in the auto industry that it could create a monopoly, giving the combined company the power to raise prices.

By contrast, industry groups expected the proposed Nippon Steel deal to preserve competition in the market. The Alliance for Automotive Innovation, a trade group representing major U.S., Japanese, and European automakers, expressed support for Nippon Steel’s acquisition, saying that a Cleveland-Cliffs-led deal would result in “anti-competitive pricing of materials.”

Even after former President Joseph R. Biden Jr. rejected the deal in January, Nippon Steel continued efforts to revive it. Cleveland-Cliffs has recently indicated that it remains interested in bidding for the financially troubled U.S. Steel. Last month, Mr. Trump reiterated that U.S. Steel must remain American-owned, and said he would block Nippon Steel from taking a controlling stake in the company.

For automakers struggling with challenges such as rising competition from Chinese rivals, costly technological transitions, and signs of a slowdown in U.S. consumer spending, the new steel tariffs are expected to further squeeze profits. The 25 percent levies, which went into effect on Wednesday, are expected to cause steel prices in the United States to rise about 16 percent compared to prices in 2024, according to the research firm Wolfe Research.

So the bloc announced a plan that is meant to retaliate in nearly equal measure.

The response will come in two parts. The bloc had increased tariffs on a range of goods in retaliation to U.S. measures during Mr. Trump’s first term, but they were suspended under the Biden administration. That suspension will be allowed to lapse on April 1, increasing tariffs on $4.5 billions of euros worth of products that include boats, bourbon and motorcycles.

The bloc’s second step, it said, would be to place tariffs on about €18 billion worth of additional products. Representatives from countries across Europe will consult for two weeks before officials finalize the list of affected products.

Items that have been proposed for inclusion are industrial and agricultural. They are meant to target products — including soybeans, beef and chicken — that are important exports from Republican strongholds. Those include the Louisiana district that elected Mike Johnson, the House speaker.

The goal is to have the new measures in force by mid-April.

The announcement was Europe’s opening move in an unfolding trade conflict — one that is widely expected to intensify over the month ahead.

For the bloc, the American steel and aluminum tariffs are just the start of what Mr. Trump has threatened. He has repeatedly vowed to set wide-ranging tariffs on American trading partners globally as soon as April 2. He has suggested that levies on cars in particular could be 25 percent, a figure that would be painful for German and Italian automakers.

“We’re now in this escalating spiral,” said Carsten Brzeski, the global head of macro research at the bank ING.

On the one hand, the European Union does not want to escalate the trade war. European officials have called tariffs “economically counterproductive,” warning that a tit-for-tat tariff fight would harm everyone involved.

“Tariffs are taxes,” Ursula von der Leyen, the president of the European Commission, the bloc’s executive arm, said in a televised statement on Wednesday. “Jobs are at stake, prices up, nobody needs that.”

But the Trump administration has been reluctant to negotiate, which is pushing European policymakers to adopt a more aggressive stance.

“I traveled to the U.S. last month; I was seeking constructive dialogue to avoid the unnecessary pain of measures and countermeasures,” Maros Sefcovic, the European Commission’s top trade official, said during a news briefing this week. “In the end, as it is said, one hand cannot clap. The U.S. administration does not seem to be engaging to make a deal.”

E.U. leaders emphasized on Wednesday that the bloc’s response is intended to be proportionate, and Mr. Sefcovic stressed that they were avoidable “if the U.S. administration accepts our extended hand.”

Mr. Trump’s tariffs come at a tough moment for the European economy. After several years of flagging growth, businesses across the bloc are staring down the prospect of worsening trade conditions that could hurt their overseas business.

Groups representing the German steel industry, for instance, have said that the tariffs come at an “inopportune time,” when producers in the European Union are dealing with cheap competition from China.

Europe has not been caught by surprise, at least. A trade-focused group within the European Union, colloquially called the “Trump task force,” spent much of last year preparing for various trade conflict scenarios.

But it has been hard for Europeans — and other American trading partners — to decide how to respond. It is also not clear what Mr. Trump’s goals are or which ones will ultimately be retained, because his administration has made a habit of threatening and then backtracking, at least temporarily.

“It’s hard to know what is going to stick and what’s not going to stick,” said Michael Strain, the director of economic policy studies at the American Enterprise Institute in Washington, which recently hosted an event with Mr. Sefcovic.

European officials have also struggled to get their American counterparts on the phone. Ms. von der Leyen has not spoken individually with Mr. Trump since his inauguration.

Asked at a news conference on Sunday when she might speak to him, she said: “We will have a personal meeting when the time is right.”

Kaja Kallas, the bloc’s chief diplomat, was supposed to meet with Marco Rubio, the American secretary of state, in Washington in late February, but Mr. Rubio canceled that meeting.

And diplomats from across the European Union and its member countries have struggled to identify whom to talk to in the Trump administration, in part from a lack of clarity about how decisions are being made.

“I do think there’s a level of consternation at the objectives of the administration,” said Jörn Fleck, senior director with the Europe Center at the Atlantic Council, a Washington-based research institution.

He said that Europe might struggle more to respond in a world in which the United States does not want to simply make a deal, but rather wants to fundamentally reorder the global trade order so that more is produced in the United States.

“Maybe there isn’t any deal to be had,” he said.