How Trump's Tariff Threats and Job Cuts are Impacting the U.S. Economy

The Chilling Effect of Tariffs on the Economy

Economists are warning that uncertainty stemming from President Donald Trump’s tariff threats and the mass layoffs of government workers are beginning to have a chilling effect on the U.S. economy.

Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security, stated, “It’s a very difficult business environment, because they can’t plan for what their cost structure is going to be. It’s adding to investment uncertainty, and some people are holding back on investments.”

Tariff Implications

Trump has already imposed 10% tariffs on Chinese imports and is set to impose an additional 10% plus 25% tariffs on Canada and Mexico starting March 4. He also mentioned plans for reciprocal tariffs to match duties imposed by other countries on U.S. goods. The uncertainty alone may cause businesses to reconsider their production levels.

“If one of the inputs of your factory goes up by 25%, you might cut your production and say maybe we’ll have to fire some people,” Ziemba added.

Impact on Consumer Behavior

The Department of Government Efficiency is also slashing the federal workforce, which is expected to impact consumption. Many workers are either losing their jobs or fearing job loss, leading to increased savings.

Recent surveys indicate that consumer sentiment has seen the largest monthly decline since August 2021, with pessimism about future employment prospects reaching a 10-month high.

Inflation Concerns

Average 12-month inflation expectations surged from 5.2% to 6% in February, influenced by rising prices of household staples and the anticipated impact of tariffs. The tariffs on Canada and Mexico could significantly raise prices at grocery stores and gas stations, with experts predicting that the cost of cars could increase by several thousand dollars due to the 25% tariffs on car parts.

“We could see the cost of building a house go up quite substantially,” Ziemba noted.