How Trump’s Whipsaw Trade Agenda Is Threatening Economic Growth

President Donald Trump’s decision to impose punishing tariffs on the U.S.’s biggest trading partners is clouding the economic outlook as businesses consider pausing future hiring and investment.

Trump’s whipsaw approach to trade policy — which has included sweeping proclamations about universal tariffs followed by delays, exemptions and reversals — has undercut businesses’ ability to plan ahead during the early days of his administration. And while he has sworn to pursue an agenda that would empower private businesses, the uncertainty generated by his myriad tariff announcements could jeopardize investment that will help the economy expand.

Private sector hiring cratered last month as more businesses cited unpredictable policies as impediments to growth, according to one widely watched survey released Wednesday. Wall Street banks like JPMorgan Chase and Goldman Sachs are ratcheting up the likelihood of the U.S. falling into a recession within the next 12 months. Businesses in New York and New Jersey expect prices to spike by as much as 4 percent over the next year, the Federal Reserve Bank of New York says. And the Fed’s regional banks reported that trade policy is contributing to economic uncertainty across the U.S.

For businesses, “it’s not just the broad fear of tariffs; it’s not knowing if they’ll be affected, how they’ll be affected or when they'll be affected,” said Gregory Daco, chief economist at the global consulting firm EY Parthenon. “That’s the gist of the conversations we have with clients across multiple sectors: They don’t know how to best position themselves with regard to the latent uncertainty about tariffs moving forward.”

To that end, Trump’s "'move fast and break things’ approach is hindering that very investment,” he said.

Trump secured his second term with promises to spur domestic industries and boost wages, and an economic slowdown would pose major political headaches for his administration whose agenda calls for a complete overhaul of the federal government and economic policy. The president is keenly attuned to financial markets, and top administration officials like Treasury Secretary Scott Bessent say they aim to boost corporate investment and “re-privatize” the economy.

But that goal is contingent on consumer and corporate optimism. Both have faded in recent weeks as markets began to contend with the possible consequences of Trump’s agenda.

“The administration wants higher growth because animal spirits are unleashed,” said Rebecca Patterson, a senior fellow at the Council on Foreign Relations and former chief investment strategist at the hedge fund Bridgewater Associates. “But how do you get more animal spirits — more mergers and IPOs — if there’s uncertainty around market and economic conditions? That seems contradictory.”

Just a day after kicking off an unprecedented trade war with Canada and Mexico — the U.S.’s two largest trading partners — the White House announced on Wednesday that temporary exemptions would be granted to domestic automakers that rely on foreign imports. The reversal echoes a similar policy shift last month, when Trump temporarily restored duty-free treatment for low-cost imports from China.

Even administration officials have begun to temper near-term expectations for an economic boom. While the labor market remains healthy by historical standards, Bessent said last week that Biden-era policies drove large swaths of the private sector into a recession. Trump has also acknowledged that tariffs will cause some economic disruption.

“There’ll be a little disturbance, but we’re okay with that. It won’t be much,” he told lawmakers during his joint address of Congress on Tuesday night.

Press Secretary Karoline Leavitt told reporters that Trump was “being frank and honest” about the short-term effects of his trade agenda.

“The American people elected this president to have monumental reform and change, including rebuilding our manufacturing base in this country, standing up to foreign nations who have been ripping off our country for decades,” she said. “That requires a little bit of disruption, that requires a lot of effort and work that this president is focused on doing.”

Critically, most of the signs suggesting the economy may be reaching a turning point due to tariffs or tariff-related uncertainty have largely been reflected in surveys, rather than the “hard” data that reflects official estimates of economic activity or payroll growth.

The Labor Department will release its monthly jobs report for February on Friday and economists expect it will reflect a healthy expansion of nonfarm payrolls — the median estimate is 170,000 — with unemployment holding steady at 4 percent. The ISM Services Index for February, which tracks activity in industries like finance and hospitality, beat expectations on Wednesday, which suggests that many firms are still hiring.

But higher prices — or even the expectation of higher prices — due to tariffs could put pressure on Federal Reserve Chair Jerome Powell to leave borrowing costs higher for longer, which would limit the ability of small and mid-market businesses to borrow for new, capital-intensive projects or hiring. New York Fed President John Williams on Tuesday said tariff-related uncertainty could cause prices to rise and weigh on investment activity in the months ahead.

“The biggest constraint on small businesses is the level of financing. It is not, you know, animal spirits,” said Brij Khurana, a fixed-income portfolio manager at Wellington Management. “If we are in a higher inflationary environment, and therefore [see] less Fed cuts in general than we would have thought a few months ago, small businesses aren't going to be doing the hiring we thought.”