Widespread tariffs and swift government cuts add pain to an already slowing economy.
President Donald Trump is steering the country toward a downturn with his tariffs and cuts to spending and the federal workforce — for no logical reason.
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Trump has raised tariffs to their highest levels since the 1940s. The scale and scope of his levies on imports from China, Mexico and Canada are beyond anything he imposed in his first term. And he has only just begun. By Thursday, he granted a one-month pause on tariffs on most Mexican and Canadian imports, but he is threatening “reciprocal tariffs” on almost all imports starting on April 2. Wall Street banks have in turn hiked their probabilities for a 2025 recession. Even economist Ed Yardeni, one of the most optimistic forecasters, said in a note that he is “raising the odds of a tariff-induced recession from 20 percent to 35 percent.”
Almost every economist I talk with uses words such as “uncertain,” “jitters” and “shaky” to describe the situation. Trump’s whipsaw actions have put businesses and consumers on edge, and they might pull back on hiring and spending. This could lead to a downward spiral: government cutbacks triggering layoffs in the private sector and spending cuts in health care, education and nonprofit services, which necessitate reductions at restaurants, stores and so on.
Early signs of trouble are apparent. Consumer confidence has plunged to its lowest level since 2023. Consumer spending tanked in January. A scary chart from the Atlanta Federal Reserve shows the economy nosediving to a -2.4 percent contraction in the first quarter. This is only a forecast, and it’s extremely skewed because companies are rushing before the tariffs take effect to bring in imports, which detract from growth. Most economists anticipate growth around 1.5 percent in the first quarter once all the data comes in — a slowdown, not a total collapse.
But the heart of the economy — consumer spending — is starting to weaken. Affluent Americans are spooked by stock market declines and a bond market signaling slow growth, or worse. Meanwhile, middle-class retail brands are struggling: Starbucks, Target and Applebee’s have seen declining sales. Restaurant owners say customers are “skipping appetizers or desserts.”
John Peyton, chief executive of Dine Brands Global, which owns Applebee’s, told investors on Wednesday: “In 2024, macro headwinds significantly impacted consumer spending. This especially affected guests with household incomes of less than $75,000.” Now, these consumers are getting hit with roughly $1,000 in extra costs because of Trump’s latest tariffs.
In addition to tariff fears, people have “layoff anxiety.” Hiring was already anemic, and the latest data from ADP indicates that, in this uncertain time, even sectors that were bright spots last year, including health care, are pulling back. The belief that there will be fewer jobs in six months has surged to its highest level in more than a decade, according to the Conference Board’s survey of consumers.
Put all this together and it’s a recession tinderbox. Growth and hiring were already slowing at the start of the year, and now Trump is inciting an economic storm. The big question is why he’s doing this. At first, it appeared he merely wanted quick wins that he could tout at daily press events. Few people thought his tariffs would last long. But his rhetoric and actions have grown more alarming. He talks as though he truly believes tariffs can bring back millions of jobs and substantial revenue. They can’t.
In his speech to Congress on Tuesday, Trump said tariffs “are about protecting the soul of our country. Tariffs are about making America rich again and making America great again, and it is happening and it will happen rather quickly.”
The White House seems almost to be hoping a downturn will come swiftly, so it can be blamed on former president Joe Biden. Treasury Secretary Scott Bessent is now fond of saying Trump will “own the economy in six or 12 months.”
But this is not what most Trump voters asked for. They want lower prices and a better economy, not a recession. Already, the president’s poll numbers are slipping. The bottom half of income earners have little to no savings to tide them over in a downturn. And while Americans have been craving more stability, Republicans are proposing to cut food stamps, Medicaid and other safety net benefits.
What remains after all this upheaval could easily be a diminished economy with fewer job options, fewer markets to sell American goods abroad and far fewer worker protections.
Trump keeps saying there “won’t be much” pain. Even Wall Street is finding this hard to believe.