Tariffs Bite, But Jobs Hold

Why the U.S. Economy’s Strength May Not Last

Photo by Jeriden Villegas on Unsplash

The U.S. economy continues to show surprising resilience, even as President Trump’s sweeping tariff policies inject new uncertainty into trade, business investment, and consumer behavior.

Employers added more jobs than expected last month, and the unemployment rate held steady at a low level. Despite a 0.3% contraction in GDP for the first quarter, the decline was largely attributed to a surge in imports ahead of looming tariffs, not weak demand. Consumer spending, though slowing, still rose at a 1.8% annualized rate, and business investment remained solid. The stock market rebounded from April lows, bolstered by steady hiring—an average of 155,000 jobs per month over the last three months, only slightly below 2024’s average of 168,000.

“For another month, the actual data coming from a key U.S jobs report failed to justify the bad vibes and anxiety that preceded it,” Cory Stahle, an economist at Indeed Hiring Lab, told The Wall Street Journal. “Against most expectations, the U.S. labor market stayed strong in April, seemingly immune to mounting uncertainty and tariff-related volatility.”

Tariffs Bite Into Corporate Confidence

Yet beneath these encouraging signals, cracks are forming. Trump’s 145% blanket tariffs on Chinese imports have caused cargo volumes from China to plunge, leading major retailers to warn of coming price hikes and potential product shortages. The repeal of the de minimis exemption has added further strain, impacting not only Chinese e-commerce giants like Temu and Shein but also U.S. businesses that relied on low-cost imported components.

This surge in trade-related uncertainty has prompted numerous companies to pull their profit forecasts and cut costs. General Motors warned that tariffs could wipe out up to a quarter of its net income for the year. Apple said current tariffs would add $900 million to its quarterly costs, with the potential for that number to rise. Smaller businesses, lacking the financial cushion of larger corporations, are especially vulnerable to tariff-driven price spikes and supply chain disruptions.

“The important statistic in that context is that 80% of employment in the U.S. economy is in businesses with less than 500 workers,” said Apollo Global Management chief economist Torsten Slok.

Consumers, meanwhile, are starting to tighten their belts. “Low- and middle-income consumers, in particular, are being weighed down by the cumulative impact of inflation and heightened anxiety about the economic outlook,” said McDonald’s CEO Christopher Kempczinski during an earnings call.

McDonald’s reported a 3.6% decline in same-store U.S. sales for the first quarter. Other brands, including Procter & Gamble, Delta, Starbucks, and Chipotle, reported softer domestic growth, particularly among more price-sensitive customers.

Warning Signs in Spending and Sentiment

Surveys underscore the mood shift. The Conference Board reported that consumer confidence fell to its lowest level since May 2020. According to a University of Michigan poll, 65% of Americans now expect unemployment to rise in the coming year. Regional Federal Reserve surveys show that manufacturers and service providers are scaling back capital spending plans.

“Manufacturers were emboldened at first,” Mark Denzler, president of the Illinois Manufacturers’ Association told The Journal. “And then the tariff issue came and created a real whack of uncertainty.”

Manufacturing activity contracted for the second consecutive month in April, according to the Institute for Supply Management. Recession fears are building: in January, Wall Street Journal economists put the odds at 22%. By early April, that number had doubled to 45%. EY-Parthenon chief economist Gregory Daco recently lowered his own recession odds from 60% to 45%, not because of better data, but because he believes the White House might scale back tariffs.

Still, business leaders remain cautious. “It’s some of the highest levels of uncertainty that I’ve seen over my 25-year career,” said Robert Haslehurst of L.E.K. Consulting in an interview with The New York Times. “Only the early days of Covid or the start of the 2008 crisis compare.” Companies now face tough pricing decisions: raise prices, cut margins, or try to do both. Some are asking suppliers for documentation proving tariff-driven cost hikes.