The “Trump Tariff Recession” That Wasn’t
Remember back in April, when the White House announced steep tariffs and half the financial commentariat clutched their pearls while the other half popped champagne? Democrats gleeful, Republicans nervous, economists warning about the next Great Recession… ah, the good old days — which, to be clear, were just four months ago.
At the time, our primary concern was that a structural shift in global capital markets was underway, one that would fundamentally alter the investing landscape, and might end the long run of US market dominance. We focused on a handful of factors that might shape our thinking, and tracked them through the vicissitudes of the moment. Despite assigning ourselves this narrow set of factors, given the frantic sound bytes - from both sides of the political aisle - it was unnervingly difficult to detect the signal from the noise. But, while we counseled patience as those factors unfolded, and stood confidently on our approach to thoughtful stewardship of client capital, we thought, on balance, a recession was likely, probably led by tariff-triggered inflation.
Fast forward to today: the economy is still standing, the stock market has been hovering around all-time highs, and the “I told you so” baton has changed hands. Republicans are quietly celebrating and Democrats are disappointed that the economy appears to not be on board for their midterm election talking points. Turns out, reality — as it tends to do — got in the way of the models, the memes, and the melodrama.
Not a Boom, Not a Bust
Let’s be clear: the economy has slowed, and inflation is a touch warmer… and may be accelerating. Think of what has happened as the economic equivalent of running into a low coffee table — not fun, but you’re walking again in 30 seconds. GDP growth is about 0.5% lower than it would’ve been without tariffs (U.S. Bureau of Economic Analysis), which in a $27 trillion economy translates to roughly $150 billion — or about $1,000 per household, lit on fire every year… forever. That’s a meaningful cost, but it’s not the cataclysm some were predicting.
Why? A few reasons:
Imports aren’t the whole story – Imported goods make up only ~11% of U.S. GDP. Tariffs sting, but most of our economy is services like healthcare, education, and software — relatively tariff-proof.
Trump blinked – The administration quietly pulled back from the big, scary 145% tariff on Chinese goods and softened hikes on the EU and Japan.
Momentum matters – The U.S. came into this with serious economic tailwinds, plus an AI/data center building boom that’s juicing investment. For that, we can thank the previous administration.
That pesky lag: since Trump telegraphed the tariffs with his on-and-off approach, corporations warehoused inventory ahead of whatever might emerge. This has resulted in an inflation buffer, as supply chains chew through those pre-tariff inventories. But this dynamic can’t last indefinitely, as inventory will need to be rebuilt on post-tarriff costs.
Inflation: Tariff Edition
Some price tags are up — appliances, toys, computers — exactly where you’d expect tariffs to bite. But at the same time, gas prices have (until only very recently) fallen, thanks to weaker global growth pushing down oil. Some businesses have been quietly eating tariff costs to keep customers (and politicians) happy, but that’s a game they can’t play forever. On balance, while core inflation numbers likely won’t change meaningfully in the near term, we expect more of the tariff impact to filter into prices in the coming months, particularly for consumer goods manufactured overseas. This could inject a note of caution in consumer confidence numbers.
The Stock Market… Shrugs
And then there’s the market — breaking records while economists wring their hands. Stocks price in a universe of factors: AI optimism, global capital flows, corporate buybacks… and yes, the occasional bubble. I gave up years ago pretending I could explain every tick, and am reminded of that old Wall Street chestnut that “markets climb a wall of worry”. If that persists, the markets could have a long way to run despite historically elevated valuations, as the current geopolitical environment is a fountain of worry. On balance, however, my strategy hasn’t changed for decades and I don’t see it changing now: own quality assets, diversify, and stay in your seat.
The Big Picture
In April, the fear wasn’t just about tariffs’ direct hit to the $3 trillion in imports; it was about the uncertainty they’d inject into the other $26 trillion of the economy. As we said repeatedly, markets can adjust to almost anything. That’s what they do. But uncertainty is a different animal. Would businesses slam the brakes on investment? Would consumers pull back? So far, that uncertainty has been more of a mood swing than a structural change. But I have to admit that my spidey senses are tingling, as I think I am beginning to hear echoes of The Great Complacency…
The U.S. is also benefiting from something other countries can only envy: deep capital markets, a diverse and skilled workforce, world-class universities, technology leadership, abundant natural resources, and — not least — the world’s reserve currency. That’s a lot of built-in resilience.
Tariffs, immigration cuts, ongoing political dysfunction, the threat of ratings downgrades and sharp restrictions in research funding will still cost us in the long run — there’s no free lunch here. But for now, the “Trump tariff recession” is more of a ghost story than reality.
So what do we do? Same as always: ignore the noise, focus on the impact, watch the data, keep portfolios balanced, and resist the urge to predict the next headline-induced apocalypse. Economists and pundits may still be nursing their bruised egos — but your portfolio doesn’t have to.
Disclaimer: The information on this page contains opinions, which should not be interpreted as factual statements. This material is provided for informational purposes only and should not be construed as investment advice. There is no guarantee that the views and opinions expressed in this material will come to pass. Investing involves the risk of loss and may not be suitable for all investors.
