While the world struggles to recalibrate a path in the wake of President Donald Trump’s trade announcements, the tariffs’ impact is becoming clear: Investors are scared, some of his billionaire backers are balking, and consumers are feeling pressure.
The first two groups are generating headlines. The third is more important to the economy. If consumers slow their spending, a recession looks increasingly likely.
Consumers’ mood has already soured, and, by one measure, expectations for the economy’s future have hit a 12-year low. Still, consumers have been spooked before and kept spending. Will this time be different?
Why We Wrote This
Some people’s confidence in the U.S. economy reflects confidence in President Donald Trump. But that confidence also depends, in part, on consumers’ expectations of how tariffs might impact them.
While U.S. shoppers are nearing that tipping point, the data suggests they’re not there yet. “Whether or not the menu of tariffs causes a recession remains in question, but it will slow down growth,” Jamie Dimon, CEO of J.P. Morgan Chase, wrote in his annual report to shareholders released Monday. The same day, investment firm Goldman Sachs raised its odds of recession to 45%.
A time for caution
What’s clear is that consumers are feeling cautious.
When three friends from Atlanta gathered last weekend at Tybee Island, Georgia, the idea was to get away from it all. Instead, the trio talked tariffs. Since all three were looking at sizable purchases – a new car, new family cellphones, and a new TV – it seemed timely to pull the trigger before tariffs drive prices higher.
“It’s time to go ahead and buy what we’ve been talking about buying anyway,” says Lindsey Wyczalkowski, a public school administrator.
Even before Mr. Trump took office, the economy had been slowing. In January, consumer spending saw its first decline in nearly two years. Spending rebounded in February, which was Mr. Trump’s first full month in office. But consumers continued to cut back on services while spending more on goods whose prices might increase when tariffs hit.
That’s what Susan, a corporate compliance officer at a Birmingham, Alabama, company, did Friday, days before Mr. Trump’s auto tariffs kicked in. She traded in her 2016 Honda CR-V with 145,000 miles on it for a 2022 Honda Passport with very little road time. Her reasoning: With tariffs, car prices (including for used cars) could go up. Replacement parts for her old Honda might get more expensive as well.
“I’m trying real hard not to have my head in the sand,” says Susan, who asked her last name not be used for privacy reasons. Because of tariffs, “It’s going to get worse before it gets better.”
Not everyone is worried. “Americans are dumb if they panic right now,” says Ethan Frank, a former Marine and now truck driver who was shopping at Best Buy in Savannah, Georgia, for a gaming headset. If tariffs had kicked in and the headset had been more expensive, “I would still buy it,” he adds.
Asking China for discounts
Retailers of all sizes are beginning to take action.
Rising coffee bean prices are squeezing Rebekah Taylor, owner of a small outdoor coffee cart in Statesville, North Carolina. Since founding Becky Brews this past November, the high school graduate has seen coffee bean prices rise more than 50%. Weather problems in the biggest bean-producing nations and rising global consumption have limited supply and pushed up prices. So far, she hasn’t raised most of her prices. Now, new 10% U.S. tariffs on all countries, including Kenya, where she sources her beans, may force her hand on prices.
“I am reaching a point where shortly I may consider raising them,” she writes in an email.
On the other end of the scale, Costco, Walmart, and now, reportedly, Target have asked their Chinese suppliers to cut prices to ease the challenge of price hikes for U.S. consumers.
Others have begun sounding an alarm as well.
“International trade is critically important to our business and industry,” Corie Barry, CEO of consumer electronics giant Best Buy, said on an earnings call with analysts Monday. “China and Mexico remain the No. 1 and No. 2 sources for products we sell.” Tariffs on those nations will show up as higher prices for consumers, she warned.
Starting Wednesday, computer chipmaker Micron, an American company headquartered in Boise, Idaho, reportedly is poised to add a surcharge on some products to cover its higher cost of components under President Trump’s tariffs. The president is raising duties on Chinese goods to a whopping 104%.
Whether consumers slow spending enough to tip the economy into recession will depend, in part, on their expectations. In March, those expectations dropped to a pessimistic level of 65.2, according to the Conference Board. Any reading below 80 usually signals a recession.
Ultimately, confidence in the economy reflects confidence in President Trump. The start of his tariff program is proving chaotic for markets – intentionally or not. Last-minute repeals of expected sanctions, conflicting statements from his administration, and, most recently, what looked like an embarrassing math error have brought into question the competence of his economic team.
Math problems
On Friday, Kevin Corinth and Stan Veuger of the right-leaning American Enterprise Institute posted a note showing that the administration had used the wrong measure in a formula used to set the tariffs. The result: Its reciprocal tariffs, announced last week, were four times higher than warranted. Instead of rates hitting near 50% in some cases, they should have moved no higher than 14%, they concluded.
Even some of Mr. Trump’s billionaire allies have begun to complain. “The global economy is being taken down because of bad math,” Bill Ackman, head of Pershing Square Capital and a Trump supporter, posted on the social platform X on Monday. Mr. Ackman has called for a 90-day pause in implementing the tariffs or risk what he called “a self-induced, economic nuclear winter.”
University of Michigan Index of Consumer Sentiment Index
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Jacob Turcotte/Staff
In a spat highlighting the tariff-fueled discord in the president’s inner circle, Trump adviser Elon Musk has meanwhile started a war of words with Peter Navarro, Mr. Trump’s trade adviser, for defending the tariffs.
All the uncertainty and division have put investors through several days of wild swings in the stock market. One tech-oriented index, the Nasdap, has already fallen more than 20% from its high, putting it in bear market territory.
“People are worried, and they have reason to be,” says Conor Rickman, a general contractor shopping for a new computer at the Savannah Best Buy. “My laptop croaked. I had no choice” but to buy now. On sale, a new one cost him $1,050. Since laptop components are mostly made in Asia, such devices could cost much more soon, he notes. “I think some people aren’t ready for it.”
