How are Trump’s tariffs affecting the U.S. economy?

In April, when Donald Trump announced his global tariff regime on “Liberation Day,” the world’s stock markets melted down. Every reputable economist warned that this shock to the global economy would cause a recession. JP Morgan Chase put the probability of a U.S. recession in 2025 at 60 percent.

Now, just four months later, Trump’s tariffs are set to go into effect. But the same panic seen in April is absent. And many Wall Streeters are warming up to Trump’s policies. The stock market is back to setting records, and inflation appears to be stabilizing.

Wells Fargo bank even issued a contrarian “bullish” prediction of an economic takeoff that will lead the S&P 500, the index of the largest industrial companies, to unseen records.

But that was all before August 1, when Trump announced double-digit tariffs on imports from multiple countries, the Labor Department reported a significant decline in new job creation, and the major stock index dropped by hundreds of points.

What is happening to the U.S. economy? Is it on the brink of a recession? Or is it on the brink of a boom?

That’s harder to determine when government figures for the gross domestic product fluctuate (down .5 percent in Q1, up by 3 percent in Q2) simply based on importers trying to build their inventories before Trump’s tariffs bite. Yet, overall, the economy is growing at an anemic 1.4 percent in the first half of 2025, half of its growth rate in 2024.

The crucial point about the so-far muted impact of the tariffs is “not yet.” Trump’s mercurial policies—where the level and application of the tariffs seems to change depending on his mood from day to day—has led most corporate planners and investors to expect that tariff levels settle out at a lower level than when Trump first announces them. Wall Street even has a term for this: “TACO” for “Trump always chickens out.”

Even if Trump has backed off the absurd tariffs that shut down virtually all shipments to the U.S. from China this spring, it’s wrong to say that the U.S. economy has dodged their impact. When Trump’s across the board tariffs go into effect on August 1 (and many are being put off to a future date), the U.S. will have an effective tariff that will add 15-20 percent to the cost of every imported good.

If those tariffs haven’t yet turned up as empty store shelves or higher prices across the board, that may only mean that these impacts are being delayed by a few months. To date, U.S. auto manufacturers have swallowed billions in higher costs for inputs such as steel and aluminum. They won’t be able to do this forever. Amazon has already raised prices on hundreds of products. Importers may be able to devise “workarounds” to the Trump tariffs, but not all of them will be able to.

When the Trump tariffs hit the average consumer’s pocketbook, they are expected to cost each U.S. household an average to $2,400 a year. Already, government statistics are picking up increases in prices for goods most susceptible to tariffs.

Most of the cost of the “big, beautiful bill” Trump signed in July comes from an extension of tax cuts that were already in place. So, it’s hard to see how preserving that status quo will give the economy a jolt. However, the bill allowed corporations to take depreciation charges (tax breaks based on declining value of investment over time) up front, rather than spreading them out over years.

Trump partisans focus on a set of Trump policies that they think they will benefit them, and by extension, the economy—if not the workers who make up the economy. But they are ignoring central parts of Trump’s current program that are deflationary and will cause wreckage in the existing economy.

Take the $2 trillion in cuts slated for Medicaid, SNAP (food assistance) and Medicare. Those sums represent a huge withdrawal of support from millions of people whose lives will not only be made more difficult, but whose livelihoods and systems of support will contract too.

Those programs help individuals. But they also hold up networks of jobs and goods and services beyond them. The SNAP cuts will definitely make more people go hungry—an estimated 6 million adults and 2 million children could lose benefits. They will also lead to declines in spending at major food retailers, cutting into their revenues, and potentially leading to layoffs at some of the nation’s large employers, like Walmart and Amazon.

Then there is Trump’s program of mass deportation. While it will pump billions into the carceral economy, it also aims to round up and to deport millions of workers who are currently engaged in productive labor. It will exacerbate long-acknowledged labor shortages in industries such as construction and the care economy.

Whole sectors of the economy could shut down. Oxford Economics estimates that if Trump succeeded in deporting one-half of undocumented construction workers, it would cut construction growth in half, costing $55 billion in lost production by 2028. If the cost and availability of housing is a crucial barrier for millions of workers today, mass deportation will make that problem worse.

Independent of Trump’s short-term policies, plenty of evidence is accumulating that points to a slowdown or a recession coming as soon as the fourth quarter of 2025.

The job market appears to be solid with unemployment rates hovering around 4 percent. But that topline number hides a labor market coming under stress. Continuing claims for unemployment insurance (a measure of persistent unemployment) have increased by more than 40 percent since its post-pandemic trough in 2022, according to the Federal Reserve Bank of St. Louis.

Job openings are down, and employment growth is confined to a small number of sectors. The average of about 130,000 jobs added per month in the first half of a year is the weakest since 2010, when the U.S. was beginning its long ascent from the depths of the Great Recession.

On August 1, the Labor Department reported that the U.S. added only 73,000 jobs in June and revised sharply downward the previous two months’ reports. Trump was so outraged by the truth that he fired the director of the Bureau of Labor Statistics!

“We’re getting more and more reliant on a very small part of the economy to drive any sort of job growth,” Heather Long, chief economist for Navy Federal Credit Union, told CNN. “There just are no jobs right now, AI or no AI, tariffs or no tariffs.”

According to the Labor Department, health care and social assistance contributed almost all the job growth in June. And, as noted above, these two sectors are in the crosshairs of the cuts to health care and social assistance that will go into effect in October.

Perhaps as a result of higher prices and more job uncertainty, real consumer spending has hit its post-pandemic high and has been stagnant for most of this year. Is consumer spending about to “roll over” into a decline that would be consonant with a recession?

It’s too soon to say, but the portents are there. And if the U.S. falls into a recession, it will be in an environment in which fewer resources, from food and medical assistance to job support, will be available to millions.

The political consequences will be dire unless the labor and social movements refuse to allow the oligarchs to offload the costs of their greed onto working people.