Economists warn that President Donald Trump’s escalating tariff threats and widespread government job cuts are beginning to cast a shadow over the U.S. economy, creating a climate of uncertainty that discourages investment and spending.
“It’s an incredibly challenging environment for businesses because they have no clear way to plan for their costs,” said Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security. “This uncertainty is making companies hesitant to invest, as many are adopting a wait-and-see approach.”
So far, Trump has implemented a 10% tariff on Chinese goods and has announced plans to impose an additional 10%, as well as 25% tariffs on imports from Canada and Mexico, set to take effect on March 4. Additionally, he has promised to implement “reciprocal tariffs,” matching the trade duties that other nations impose on American exports. These measures come on top of planned tariffs on key industries, including automobiles, semiconductors, steel, and aluminum. Even if all these tariffs are not ultimately enacted, the mere possibility of them is already having a dampening effect on business decisions.
Tariffs and Job Cuts Add to Economic Strain
“If a factory’s production costs rise by 25% because of a tariff increase, the company may decide to scale back operations and lay off workers,” Ziemba explained.
At the same time, deep reductions in the federal workforce—driven by budget cuts from the Department of Government Efficiency—are contributing to economic unease. “When people lose their jobs, or even fear they might, they tend to cut back on spending and save more instead,” Ziemba added.
This uncertainty is already affecting consumer sentiment. According to the latest survey from The Conference Board, consumer confidence saw its sharpest monthly drop since August 2021.
Inflation Concerns and Rising Costs
“Consumers are growing increasingly concerned about the job market. Their outlook on future business conditions has soured, and they are less hopeful about their income prospects,” said Stephanie Guichard, a senior economist at The Conference Board. “Pessimism regarding employment opportunities has also surged to a 10-month high.”
Meanwhile, inflation expectations have climbed, with the average 12-month inflation forecast jumping from 5.2% to 6% in February. “This increase likely stems from a combination of persistent inflationary pressures and recent price hikes on household staples such as eggs, as well as the anticipated impact of tariffs,” Guichard explained.
With Canada and Mexico being the United States’ largest trading partners, tariffs on their goods could lead to price hikes on essentials like food and gasoline. Ziemba also pointed out that the cost of vehicles could rise by several thousand dollars, further straining household budgets.
As economic uncertainty continues to mount, businesses and consumers alike remain on edge, bracing for the potential consequences of Trump’s trade policies and government workforce reductions.