The Global Economy: Shrouded in Uncertainties and Tariffs

President Trump started his second term with a barrage of executive orders (over 100 since the inauguration) aimed at disrupting the status quo while pushing his America First agenda. The first few months of Trump 2.0 have been mired in inconsistent messaging, especially on tariffs and the government spending cuts led by the Department of Government Efficiency (DOGE). In the short term, it creates uncertainty and raises the odds of a U.S. recession and global slowdown.

Since taking office on January 20th, the Trump Administration has levied multiple rounds of tariffs on China, 25% on imported cars and 25% on steel and aluminum imports. Some even aimed at hitting America’s closest trading partners. Last week, reciprocal tariffs were also placed on nearly all goods globally (ranging from 10% to 50%) imported into the U.S. as part of “Liberation Day.” These tariffs were significantly higher than anticipated and caused market participants to sell equities and buy bonds around the globe. The size of the tariffs will have significant global implications, which will cause growth to slow and potentially increase inflation. Global supply chains are currently being reshaped as companies try to mitigate future tariffs. However, supply chains are decades in the making and cannot be entirely upended in a matter of weeks. CEOs anxiously want to know the new trade rules so they can plan for them. 

Reducing the size and spending of the federal government has also been a top priority of the administration. As of March 30th, DOGE had saved taxpayers $140 billion, according to its website, which is a far cry from the $2 trillion initially touted. Today, it remains to be seen what the total savings will be and if there will be any tax reform with the year-end expiration of the Tax Cuts & Jobs Act of 2017. While the administration’s goal is long-term fiscal stability, these actions have created short-term uncertainty. Regardless of where you lean politically, most Americans can agree that the current deficit spending is unsustainable, which is what this administration is trying to rein in. How we get there is certainly up for debate. Undoubtedly, there will be more cuts, likely through the continued reduction in the federal workforce. These job cuts are creating significant uncertainty in the government sector, which is spilling into the rest of the economy. Markets do not like uncertainty, and this is the reason why we saw the selloff in U.S. equities in the second half of the quarter and into April (see Markets).

Going into 2025, following the re-election of President Trump, there was a growing sense of optimism around the economy. A pro-business President who was going to reduce regulation, lower taxes, and bring jobs back to the U.S., which all seemed very stimulative. Fast forward to the end of the quarter and early April, there is growing confusion and a tremendous amount of economic uncertainty that has developed in just a matter of months. This is causing the consumer to slow down their spending and save more as they get more cautious. As a result, we have begun to see some earnings estimates be revised down, which we are closely monitoring. Until certainty returns to the economy, there will be additional volatility, which can be very uncomfortable for long-term investors. Although economic clarity will return, when it happens remains to be seen. In the meantime, the risk of a recession is rising as uncertainty swirls around the globe, but as a nation, we will get through it.

This Commentary is provided by Spraker West Wealth Management, a registered investment advisor, and is for informational purposes only. It should not be construed as investment advice and is not intended as a solicitation of any specific product or service. Investments and/or investment strategies include risk including the possible loss of principal. There is no assurance that any investment strategy will achieve its objectives. Information provided is not intended as tax or legal advice and should not be relied upon as such. You are encouraged to seek tax or legal advice from a qualified professional.