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(WASHINGTON) — Economists say the uncertainty from President Donald Trump’s tariff threats and mass layoffs of government workers are starting to have a “chilling” effect on the U.S. economy.
“It’s a very difficult business environment, because they can’t plan for what their cost structure is going to be,” said Rachel Ziemba, an adjunct senior fellow at the Center for a New American Security. “It’s adding to investment uncertainty, and some people are holding back on investments.”
Trump has so far imposed 10% tariffs on Chinese imports and says he’ll impose additional 10%, plus 25% tariffs on Canada and Mexico on March 4. Trump also says he will impose “reciprocal tariffs” that match the duties other countries levy on the U.S. That comes on top of tariff plans on cars, semiconductors, steel and aluminum. Even if Trump doesn’t ultimately move forward with all his tariff threats, the mere uncertainty has a chilling effect.
“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.
Meanwhile, the Department of Government Efficiency’s slashing of the federal workforce across the country “also impacts consumption, because people are losing their jobs or are afraid of losing their jobs, so that might cause them to save more money,“ Ziemba said.
This week, The Conference Board’s consumer sentiment survey found that it registered the largest monthly decline since August 2021.
“Views of current labor market conditions weakened. Consumers became pessimistic about future business conditions and less optimistic about future income. Pessimism about future employment prospects worsened and reached a 10-month high,” said Stephanie Guichard, senior economist for global indicators at The Conference Board.
“Average 12-month inflation expectations surged from 5.2% to 6% in February. This increase likely reflected a mix of factors, including sticky inflation but also the recent jump in prices of key household staples like eggs and the expected impact of tariffs,” Guichard said.
The Canada and Mexico tariffs would have a sweeping effect, since those are America’s two biggest trading partners. It could raise prices at the grocery store and the gas pump. Ziemba also noted that the cost of cars could increase by several thousand dollars.
“Every time a car part crosses the border, 25% tariffs could be very onerous,” Ziemba said. “We could see the cost of building a house go up quite substantially.”
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