How Trump’s trade strategy tests the US economy Tariffs and turbulence

In April, President Donald Trump’s bold imposition of so-called “Liberation Day” tariffs triggered dire warnings of economic disaster. Stock markets tumbled, recession alarms blared, and forecasters painted a grim outlook. Yet, three months later, the expected economic apocalypse has failed to materialize. Prices remain largely steady, unemployment holds firm, and the S&P 500 has bounced back to record highs. So, what gives? Has the tariff gambit been more bark than bite?

The Economist’s in-depth article peels back the layers of this complex story, revealing a US economy caught in a cautious standoff between policy shocks and business pragmatism. Companies, having stockpiled imported goods in anticipation of tariffs early in the year, have temporarily distorted economic data—dragging first-quarter GDP into negative territory due to surging imports. These inventories are now running down, pushing businesses back toward importing despite the added costs.

Faced with the tariffs, businesses have chosen to absorb the extra expense rather than pass it on to consumers. This strategic patience aims to avoid alienating customers with higher prices, especially amid the possibility that tariffs might be lifted or altered soon. As a result, broad inflationary pressures from tariffs are surprisingly muted. Even detailed price analyses show only slight increases—around 1-2%—in categories directly affected by tariffs, a fraction of the tariffs’ nominal rate, which now stands near a century-high 12%. This disparity highlights the complexity of how tariffs transmit through supply chains and pricing decisions.

Interestingly, tariffs may also be indirectly suppressing prices by denting consumer confidence and demand. The initial shock caused consumer sentiment to plunge, reflected in softened household spending and a slowdown in core GDP drivers like private investment and consumption. The Federal Reserve’s Atlanta branch estimates that growth rates in these areas have tumbled from a healthy 2-3% annualized rate to about 1%. Goldman Sachs places this deceleration alongside previous “event-driven” shocks that historically preceded recessions.

Looking ahead, much hinges on the political calculus of President Trump as the 90-day tariff pause expires on July 9th. If tariffs are reinstated or intensified, economic growth could slow further, risking more significant drag on investment and consumption. The parallel with Britain’s post-Brexit experience is apt: elevated uncertainty alone can paralyze business decisions, extending economic weakness well beyond the initial shock.

Yet, the US economy retains formidable strengths that could cushion it against a full-blown recession. Sustained growth averaging 2-3% annually since 2022 positions America uniquely among wealthy nations. Moreover, Trump’s own fiscal stimulus package is front-loaded, potentially offsetting tariff-induced weaknesses in the near term—albeit at the risk of stoking inflationary pressures that the Federal Reserve will have to combat.

Ultimately, The Economist paints a picture of an economy navigating through a murky landscape of tariffs and uncertainty, with neither triumph nor disaster yet clear. The American public may barely notice the subtle erosion of economic well-being as the true cost of protectionism unfolds in slow motion. For Trump, the tariffs may prove more a contentious political gambit than an economic masterstroke—a story of resilience, restraint, and unresolved risk.

By Vugar Khalilov