A powerful force is taking hold of the U.S. economy: fear. A recent CNN/SSRS poll revealed that two-thirds (66%) of Americans are pessimistic or fearful about the economy, a sentiment driven by uncertainty surrounding President Donald Trump’s trade policies and tariffs. With a growing sense of dread in the first 100 days of his second presidency, consumer confidence has dropped to levels not seen since the global financial crisis, raising concerns about the future of U.S. economic growth.
The Impact of Tariffs on Economic Confidence
The overwhelming majority of Americans—69%—now view a recession as at least somewhat likely in the next year, with 32% believing it’s very likely. This shift in sentiment could have serious consequences for the economy, as fear of a recession often leads to reduced consumer spending. As people tighten their belts, businesses follow suit, cutting back on hiring and investment, which in turn leads to even further economic contraction. This negative feedback loop poses a risk of a self-fulfilling prophecy where fear leads to a real downturn.
The Trump administration’s tariff policies, particularly the trade war with China, are contributing to this sense of uncertainty. The decision to raise tariffs on Chinese imports, along with other protectionist measures, has rattled both consumers and businesses. David Kotok, co-founder of Cumberland Advisors, noted that the chaos surrounding these policies has already begun to disrupt the economy, signaling the start of a downturn.
Consumer Spending: The Key to Economic Resilience
Despite the bleak outlook, consumer spending remains a crucial factor in the U.S. economy’s ability to weather this storm. Historically, even during periods of pessimism, Americans have continued to spend, helping to sustain growth. In fact, despite the fears of recession, U.S. retail sales jumped in March, and car sales surged as consumers rushed to make purchases before the impact of tariffs fully materializes. This is a clear sign that, while consumer confidence may be low, it hasn’t completely curbed spending.
Still, the uncertainty surrounding tariffs remains a significant concern. As President Trump’s protectionist policies continue, the likelihood of a “stagflationary shock” increases. This scenario, where the economy slows while prices rise due to tariffs, could put further strain on businesses and consumers alike.
Business Leaders’ Growing Fears
Business leaders are increasingly worried about the economic consequences of tariffs. Many are already seeing signs of strain, particularly in industries that rely on imports. A recent survey found that a significant number of small and mid-sized toy companies are delaying orders due to tariff uncertainty. Furthermore, nearly half of these companies report that they may go out of business within weeks if the trade environment doesn’t improve.
In the airline industry, CEOs are already speaking out about the impact of reduced consumer confidence. Southwest Airlines CEO Bob Jordan noted that the drop in domestic leisure travel outside of the pandemic represents a recession for the industry, even if it’s not officially labeled as such. Similarly, analysts like JPMorgan’s David Kelly and investment economist Torsten Slok have expressed concerns that a shallow recession could be on the horizon unless there is a sharp reversal of current tariff policies.
Policy Whiplash and Economic Uncertainty
The shifting nature of U.S. trade policy has created an environment of “policy whiplash,” where changes in direction seem to occur rapidly and unpredictably. Even if the Trump administration decides to ease the trade war, there’s little confidence that such decisions will be sustained. Jared Bernstein, a top economist for President Joe Biden, warned that while the current economic indicators don’t conclusively point to a recession, the risks are high, particularly due to the stagflationary impact of tariffs.
Ultimately, while it’s still uncertain whether the U.S. will slide into a full-blown recession, the combination of low consumer confidence, trade war disruptions, and fears of rising prices due to tariffs creates a volatile economic landscape. For now, the U.S. economy stands on a razor-thin edge, with many hoping that consumer spending and strong labor market conditions can carry the economy through the storm.