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Economic Outlook
April 14, 2025
By John Silvia
The announcement of new tariffs by President Trump marks the beginning of a critical and uncertain phase for the U.S. economy. While the full impact is still unfolding, early signs point to a significant economic slowdown, rising prices, and heightened inflation.
These factors are poised to reduce real incomes for households and strain business credit quality. As markets react ahead of tariff implementation, the broader implications— such as reduced cash flow for companies, particularly those with heavy reliance on imports—are beginning to materialize. With global responses still pending, the situation remains volatile, leaving both consumers and businesses to navigate an increasingly uncertain economic landscape. This article explores the immediate effects of President Trump’s tariff policies and the potential long-term consequences for economic growth and credit quality.
Credit quality will decline given the tariffs put forth by President Trump. From the economic perspective, economic growth will be slower than earlier expected. Price levels will be higher and for the first six months there will be an acceleration in inflation. Slower growth and higher inflation will reduce real incomes for households and lead to poorer credit quality.
Slower economic growth and higher input prices will reduce the cash flow for companies and thereby be associated with poorer business credit quality. Finally, uncertainty has risen and the level of uncertainty has not been reduced as President’s Trump statement is only the first step in the tariff implications as we wait for other countries response. What are the details?
In early April President Trump announced a set of new tariffs on foreign nations. Where are we now on the economic outlook?
President’s Trump’s announcement is only the first step in a sequence of scenarios that will reflect the choices of nations and the response, in turn, by the U.S. We have only viewed the opening move—in chess, we have seen White moves pawn to King 4. We await other countries’ response. Yet already we have witnessed markets move ahead of the actual implementation of tariffs.
In the first move, consumers will face higher U.S. prices at the grocery store and hardware store. Coffee and cocoa will cost more at your favorite breakfast shop or confectionary. All this just in time for Easter.
As for the latest data for February, we have already witnessed a rise in import prices for consumer goods, ex- auto, and industrial supplies as importers bid up prices in anticipation of higher tariffs. Import prices rose noticeably for goods from the EU and
Asia non-industrialized nations.
The rise in prices is consistent with the history of the steel tariffs experience of 2002 and the aluminum and steel tariffs of 2018/2019. Prices rose in anticipation of tariffs and remained above pre-tariff levels even after the tariffs were removed.
For economic growth, indicators signal a slowdown. The ISM manufacturing and services surveys both gave down readings in March compared to February, with drops in the subcomponents of production, employment and orders. Meanwhile, prices paid rose.
Auto and steel companies have already announced shutdowns in production.
On the financial front, the total return for the S&P index, Russell 2000 (small cap) and NASDAQ 100 are all down over the last three months.
Ten-year U.S. Treasury rates are also down in anticipation of weaker economic growth and Fed easing. As a signal of slower growth, corporate credit spreads on high-yield and high-grade bonds are up over the last two months.
Finally, the U.S. dollar value has fallen relative to the Euro, for example. In part, this may reflect less incentive to invest in the U.S. as economic expectations for growth decline but also, with less trade, there is less need for the dollars.
President Trump’s tariff announcement may be peak uncertainty, but uncertainty remains. Other countries have yet to announce their retaliation moves.
Canada has announced that “Canada will fight Trump’s trade war with ‘purpose and force,’ according to Prime Minister Carney.
European Commission President Von Der Leyen “Vows Response to Trump’s 20% Tariffs.”
For company indicators, watch Amazon, Target and Apple as they are major buyers and sellers in the China market.
Soybean and pork farmers will be sensitive to any retaliation from China.
Stellantis has already announced a production cutback. GM’s final assembly is 54 percent domestic for their vehicles, so they are sensitive to how tariffs are applied to their imported products.
While the full effects of the new tariff policies are yet to be seen, the early signs suggest a period of economic turbulence marked by slower growth, higher prices, and increased uncertainty. As tariffs begin to take hold, consumers will feel the impact through higher prices, and businesses may face tighter margins and reduced cash flows. The global response to these tariffs will play a crucial role in shaping the future economic landscape, as retaliation from foreign nations could escalate tensions and further strain economic conditions. With rising inflation, declining credit quality, and an overall slowdown in economic activity, both households and businesses will need to adapt to a changing environment where uncertainty remains high and economic forecasts grow increasingly cautious. The next few months will be pivotal as we await further developments on the international stage.
These factors are poised to reduce real incomes for households and strain business credit quality. As markets react ahead of tariff implementation, the broader implications— such as reduced cash flow for companies, particularly those with heavy reliance on imports—are beginning to materialize. With global responses still pending, the situation remains volatile, leaving both consumers and businesses to navigate an increasingly uncertain economic landscape. This article explores the immediate effects of President Trump’s tariff policies and the potential long-term consequences for economic growth and credit quality.
Credit quality will decline given the tariffs put forth by President Trump. From the economic perspective, economic growth will be slower than earlier expected. Price levels will be higher and for the first six months there will be an acceleration in inflation. Slower growth and higher inflation will reduce real incomes for households and lead to poorer credit quality.
Slower economic growth and higher input prices will reduce the cash flow for companies and thereby be associated with poorer business credit quality. Finally, uncertainty has risen and the level of uncertainty has not been reduced as President’s Trump statement is only the first step in the tariff implications as we wait for other countries response. What are the details?
In early April President Trump announced a set of new tariffs on foreign nations. Where are we now on the economic outlook?
President’s Trump’s announcement is only the first step in a sequence of scenarios that will reflect the choices of nations and the response, in turn, by the U.S. We have only viewed the opening move—in chess, we have seen White moves pawn to King 4. We await other countries’ response. Yet already we have witnessed markets move ahead of the actual implementation of tariffs.
In the first move, consumers will face higher U.S. prices at the grocery store and hardware store. Coffee and cocoa will cost more at your favorite breakfast shop or confectionary. All this just in time for Easter.
As for the latest data for February, we have already witnessed a rise in import prices for consumer goods, ex- auto, and industrial supplies as importers bid up prices in anticipation of higher tariffs. Import prices rose noticeably for goods from the EU and
Asia non-industrialized nations.
The rise in prices is consistent with the history of the steel tariffs experience of 2002 and the aluminum and steel tariffs of 2018/2019. Prices rose in anticipation of tariffs and remained above pre-tariff levels even after the tariffs were removed.
For economic growth, indicators signal a slowdown. The ISM manufacturing and services surveys both gave down readings in March compared to February, with drops in the subcomponents of production, employment and orders. Meanwhile, prices paid rose.
Auto and steel companies have already announced shutdowns in production.
On the financial front, the total return for the S&P index, Russell 2000 (small cap) and NASDAQ 100 are all down over the last three months.
Ten-year U.S. Treasury rates are also down in anticipation of weaker economic growth and Fed easing. As a signal of slower growth, corporate credit spreads on high-yield and high-grade bonds are up over the last two months.
Finally, the U.S. dollar value has fallen relative to the Euro, for example. In part, this may reflect less incentive to invest in the U.S. as economic expectations for growth decline but also, with less trade, there is less need for the dollars.
President Trump’s tariff announcement may be peak uncertainty, but uncertainty remains. Other countries have yet to announce their retaliation moves.
Canada has announced that “Canada will fight Trump’s trade war with ‘purpose and force,’ according to Prime Minister Carney.
European Commission President Von Der Leyen “Vows Response to Trump’s 20% Tariffs.”
For company indicators, watch Amazon, Target and Apple as they are major buyers and sellers in the China market.
Soybean and pork farmers will be sensitive to any retaliation from China.
Stellantis has already announced a production cutback. GM’s final assembly is 54 percent domestic for their vehicles, so they are sensitive to how tariffs are applied to their imported products.
While the full effects of the new tariff policies are yet to be seen, the early signs suggest a period of economic turbulence marked by slower growth, higher prices, and increased uncertainty. As tariffs begin to take hold, consumers will feel the impact through higher prices, and businesses may face tighter margins and reduced cash flows. The global response to these tariffs will play a crucial role in shaping the future economic landscape, as retaliation from foreign nations could escalate tensions and further strain economic conditions. With rising inflation, declining credit quality, and an overall slowdown in economic activity, both households and businesses will need to adapt to a changing environment where uncertainty remains high and economic forecasts grow increasingly cautious. The next few months will be pivotal as we await further developments on the international stage.
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