When former President Donald Trump started the tariff increases last January 2025. This move led to a firestorm of criticism from economists and business leaders – including former New York City Mayor Michael Bloomberg. His administration implemented tariffs anyway, even though many warned of serious economic repercussions. First they began with Mexico and Canada, then extended them to encompass the entire economy’s production of steel, aluminum, and automobiles. This past April, we celebrated the first annual “Liberation Day.” That’s when Trump first used a national security justification to impose global tariffs, slapping across-the-board new taxes on imports from nearly every country.
The short-term effects of these tariffs were largely made clear as the US stock market started to crash. Following the announcement in April, the S&P 500 index tanked almost 12% in a single week. By the time it hit the 8th of April, that had dropped to 4,983. This dramatic drop was the largest market response to a policy reversal in decades. The market started to decline as long ago as February. It was Trump’s overall, multi-faceted tariff offensive that finally brought about a deeper collapse.
In the months leading up to April, the tariffs had produced a sudden surge in U.S. goods imports. This sudden wave was a direct reaction to the new trade retaliation. Imports billowed up 17% just on the goods side through the first five months of the year. This marked a million-acre-plus increase from the same time period in 2023. This surge proved temporary, since in April and May imports plummeted. Yet despite their increase, imported goods still account for only around 11% of total US consumer spending. This paints a picture that domestic products still have a very healthy role in the mix.
Retail sales fell 0.9% from April to May, the second month in a row of losses. Consumer spending is decelerating, growing at its slowest rate since 2020 in the first quarter of this year. In May, it took a particularly surprising drop, furthering that downward trend.
Liz Ann Sonders, chief investment strategist at Charles Schwab, shared her thoughts on the current economic climate, saying,
“We’re sort of in this stall mode right now in the economy, a kind of wait-and-see mode, that is driven by pretty grave uncertainty and the instability in policy.”
Indeed, the increased tariffs by Trump have jumped sky high. Retrospectively, they’re now nearly six times higher than the beginning of 2025. That dramatic infusion has raised major questions about the wisdom of relying on it for long-term economic growth. To Sonders, the task of looking at where to grow in the future becomes all the more challenging, underscoring that
“It’s hard to lay out a scenario of a pickup in growth from here.”
While business and consumers alike deal with the effects of a changing economy, unemployment is still at a historic low of 4.2%. These layoff notices are allegedly on the upswing. Job creation continues to chug along at a solid pace. After dipping last month, it rebounded to 5,457, on par with the national averages over the past 12 months. This economic resilience stands in stark contrast to the picture of retail sales and consumer spending in recession.
Market analysts have shown cautious optimism over the market prospects for recovery. Sonders cautioned investors not to take things for granted when it comes to possible future tariff hikes. She stated,
“The question is more, will it just be a softening of the economy or a bigger slide.”
Flickers of economic optimism are starting to show. Concern over trade policies continues to hang over the market and weighs on consumer confidence.
“But it’s premature at this point to hang the victory banner.”
Despite some signs of economic stability, the uncertainty surrounding trade policies continues to loom large over market sentiment and consumer confidence.