Whether it’s the volatility in the stock market, concerns about tariff-induced inflation, the fluctuation in interest rates, or the growing talk of recession (and stagflation), the economic outlook in April was more fluid and less predictable day-to-day, and that seems unlikely to change any time soon.
Even though the Trump administration has suspended its country-by-country tariffs until early July, the White House has still maintained an across-the-board 10% duty on all global imports, with duties for Chinese imports set as high as 145%. It has also slapped levies on certain products such as steel and autos. But an arbitrary 90-day delay is just that: a respite that postpones any conclusion and adds to the uncertainty crippling consumer and business confidence.
The initial impact of tariffs has so far been most immediately felt in financial markets, with stocks erasing nearly a year’s worth of gains shortly after the tariff announcement amid fears of an economic growth slowdown or outright recession. Now, companies are starting to issue more concrete warnings about the impact that tariffs could have on their bottom lines—and on consumers. As of late April 2025, numerous companies had either pulled their guidance for the year or slashed their outlook.
On. Off. On … But Then Off Again?
The Trump administration’s on-again, off-again tariff directives mean companies have little predictability to take actions such as greenlighting investments or redistributing longstanding supply chains. The unpredictability of the administration’s trade policies effectively paralyzes companies on all fronts, with one exception: cutting costs. So, companies are looking at delaying construction of new plants and reducing discretionary spending. The Federal Reserve’s bi-quarterly Beige Book report, which surveys business conditions in Fed districts, found companies were starting to adjust their pricing to account for tariffs by adding surcharges or raising prices outright.
Few companies have announced large-scale layoffs, though they are making some noticeable adjustments that could alarm workers by slowing hiring, leaving roles unfilled, and scrutinizing spending on consultants and contractors.
Companies must decide, for example, whether it is worthwhile to import products from China to put on the shelves when the prices for those goods might go up by so much that consumers would be discouraged from spending.
Some Numbers
Real GDP contracted at a 0.3% annualized rate in the first quarter of 2025, after rising 2.4% in the fourth quarter of 2024. Attempts to get ahead of the tariffs helped support consumer spending, investment, and stockpiling of inventories. Surging imports subtracted five percentage points from overall growth.
Consumer spending rose 1.8%, less than the 4.2% annual surge of the fourth quarter of 2024. Spending on big-ticket items fell despite a late-in-quarter surge in vehicles sales to front-run the tariffs. The PCE price index accelerated unexpectedly during the first quarter of 2025. The inflation figure rose 3.6% compared to 2.4% in the fourth quarter of 2024.
The latest U.S. jobs report showed remarkable resilience in the labor market ahead of a coming tariff shock. Payroll employment increased by 177,000 jobs in April 2025 following downward revisions of 58,000 for the previous two months.
The unemployment rate remained unchanged at 4.2%. Federal government employment has decreased by 29,000 positions since January, with additional layoffs anticipated. The results suggest that any uncertainty over the Trump administration’s trade policy has yet to have a material impact on hiring plans. For example, a sharp drop in container-ship departures from China to the U.S. began after the reference period for April payrolls had closed. Most economists anticipate the brunt of the impact from punishing levies will be seen in coming months.
The U.S. trade deficit widened to a record in March 2025 as the goods-and-services gap grew 14% from February 2025 to $140.5 billion, above the median Bloomberg estimate of $137.2 billion. Imports of consumer goods climbed by the highest margin on record, primarily due to the largest-ever inflow of pharmaceutical preparations.
Imports of capital equipment and motor vehicles also increased. The value of all imports to the U.S. jumped 4.4% to a record in the first quarter of 2025, while exports edged up just 0.2%. Imports surged to record highs for several countries: the United Kingdom, Ireland, Netherlands, Belgium, France, Germany, Italy, India, and Vietnam.
As for exports, there was a small increase of 0.2% in March from the prior month, while the total value of exports was still strong. However, a worrying data point is the drop of 7.1% in travel services exports in March from the prior month, which is the slowest since November 2023. This drop appears to be showing a new trend arising from weakness in U.S. tourism. The Financial Times has highlighted a significant decline in the number of Europeans travelling to the U.S. The European Union and the U.S. are set to enter trade negotiations, but the EU has started with a threat of tariffs on $113.452 billion of U.S. goods.
What’s Moving?
Sea-faring cargo shipments from China to the U.S. plummeted 65% in the three weeks after tariffs took effect in early April 2025, according to the global logistics company Flexport. Ocean freighters called off about 80 trips from China to the U.S. in April. That’s almost 60% more cancellations than during the peak of the disruptive supply-chain interruption in May 2020, during the worldwide pandemic.
Meanwhile, year-over-year trucking activity out of Los Angeles, the main point of entry for Chinese goods, has declined 23%, leaving industry players in the logistics space rattled
The situation is further complicated by the fact that many importers have temporarily halted inbound shipments as they reassess their strategies considering the new tariff regime. While some of these pauses may be transient, the overall trend suggests a more prolonged period of reduced volume, especially for businesses heavily reliant on goods targeted by the administration’s tariffs.
Imports and exports accounted for more than 32% of freight tonnage moved domestically by trucks as of 2023. We may soon see a disruption of supply chains such as those during the pandemic.
In early May, Toyota projected that its operating profit would decline by about one-fifth for the fiscal year ending in March 2026. The Japanese automaker cited headwinds from a stronger yen and predicted a $1.3 billion hit from the Trump administration’s tariffs in April and May of 2025.
Ford Motor Company announced it was hiking prices on three of its Mexico-produced models effective May 2, becoming one of the first major automakers to adjust sticker prices following the tariffs. Prices on the Mustang Mach-E electric SUV, Maverick pickup truck, and Bronco Sport will increase by as much as $2,000 on some models, according to a notice sent to dealers.
Canadian exports to the U.S. fell 6.6% in March 2025, the largest drop since the pandemic, while imports from the U.S. fell 2.9%. Canadian exports to countries other than the U.S. jumped 24.8%, driven in part by exports of gold and crude oil, almost entirely offsetting the decline in outbound shipments to the U.S.
China reported export growth rising 8.1% in dollar-denominated terms in April 2025 from a year earlier. But the nation’s shipment of goods to the U.S. dropped 21%, while Chinese exports to the Association of Southeast Asian Nations bloc (including Thailand, Brunei, Singapore, Malaysia, Indonesia, and the Philippines) surged 21%, according to official trade figures from China’s General Administration of Customs. China also reported that exports to Latin America jumped 17%, while shipments to Africa rose by 25%. Chinese exports to the European Union rose 8.3%.
Chinese e-commerce fast-fashion giant Shein Group Ltd. raised U.S. prices of its products from dresses to kitchenware ahead of imminent tariffs on small parcels in an early sign of the potential effect of the trade war on American consumers. According to Bloomberg News, the average price for the top 100 products in the beauty and health category increased by 51% for home and kitchen products and toys, the average jump was more than 30%.
The bargain site Temu, another Chinese e-commerce firm, imposed new surcharges that doubled the cost of what had been ultracheap online purchases. It also started breaking out import charges on each individual purchase that often far exceeded the price of the items.
Temu also stopped shipping products directly to U.S. consumers directly, marking a dramatic shift in its business model. The company’s bestselling items, which had been very cheap, smaller items such as hairpins and charging cables, are now mostly more bulky furniture and household appliances. Martin Balaam, chief executive of Pimberly, an AI-powered product platform for e-commerce, told the Wall Street Journal that Temu is likely to unload inventory in China intended for the U.S. market to other countries.
What’s Going On?
How long will this slowdown persist? We have moved from a period in which U.S. data reflects the strength of the economy to one in which it is scrutinized for the damage being done by tariffs because even those who believe the new import taxes will fortify the U.S. economy acknowledge there will be pain first.
The stance seems to reflect the realization that Trump administration’s tariffs aren’t going away. The White House is signaling clearly that the 10% global tariff is here to stay, as are higher sectoral tariffs on cars, aluminum, steel, and eventually semiconductors and pharmaceuticals. For those planning for the longer term, the salient questions are when financial markets will finally adjust and how much economic pain Americans are willing to take. The University of Michigan and the Conference Board’s surveys of consumer confidence have turned sharply lower in recent months especially expected inflation.
The Small Business Optimism index from the National Federation of Independent Business, a non-profit organization dedicated to advocating for the interests of small and independent business owners, declined to 97.4 in March 2025, marking its lowest level since October 2024. This is a drop of 3.3 points from the previous month and is below the 51-year average of 98.
The hard data reflecting actual activity has been positive. Retail sales hit a record high in March 2025, and weekly credit card-spending data suggest that strength continued into April. Durable goods orders continue to be positive. Meanwhile, key labor market metrics including job creation, unemployment, and claims for unemployment insurance continue to trend at levels associated with economic expansion. However, it is probable that much of the recent positive activity is in anticipation of tariffs.
Conclusion: What Next?
Even high tariffs don’t normally cause recessions, but the unpredictable tariffs leaving businesses hesitant to make long-term investment decisions very well might. The Yale Budget Lab estimates that the tariffs implemented as of April 15 will detract from U.S. GDP by 1.1% in 2025. Historically, for every 1% change in quarterly GDP, there is a 4% change in earnings growth, meaning S&P earnings growth could fall by about 4% this year.
Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, believes that while the consensus for 2025 S&P 500 earnings growth is currently around 10%, it is likely too lofty and will see downward pressure. She suggests that the expectation of 14% or 15% earnings growth in 2025, which was based on record-breaking profit margins, is unrealistic.
With the Trump administration’s tariffs putting the economy on a path toward weaker growth, higher unemployment and faster inflation the Federal Reserve is facing a situation it hasn’t dealt with since the 1970s.
At the most recent meeting of the agency’s Federal Open Market Committee (FOMC) in the first week of May, the Fed held interest rates steady while noting that the risks of higher inflation and unemployment had risen. The policy-setting panel voted unanimously to keep the benchmark federal funds rate in a range of 4.25% to 4.5%, where the rate has been since December 2024.
Fed chairman Jerome Powell dismissed any idea of making preemptive rate cuts while inflation is still running above target. “It’s not a situation where we can be preemptive, because we actually don’t know what the right responses to the data will be until we see more data,” Powell said. There are five FOMC meetings left for the year, with the next being June 17-18.
Forecasters are roughly split, with nearly 4 in 10 figuring more than 50% odds of a downturn, according to a recent survey by the National Association of Business Economics. Survey data from the Institute for Supply Management showing declining imports by manufacturers and services providers also suggests the strategy of rushing to purchase imports ahead of the imposition of tariffs is ending.
Bowen Asset Management believes that there will be an economic slowdown. The question is: How much of a slowdown will there be, for how long and will it lead to a recession?
In addition, there are concerns over what the tax bill that Congress is considering will look like if and when it passes. Will there be enough cuts in spending to offset any tax cuts and what will the spending cuts be? Will we get an increase in the debt limit?
Inflation remains somewhat elevated, while tariffs and a weak dollar are likely to boost prices further. The Fed is expected to remain on the sidelines for much of this year. The recent drop in the value of the dollar on international exchange markets is another hurdle, as it will amplify inflation.
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