Things were going well, then along came Tariff Man. According to a news update that crossed my desk this week, the US economy shrank during the first three months of what some have optimistically dubbed America’s new “golden age.” The initial read on Q1 GDP showed a 0.3% contraction, modest but notable.
The culprit? Mostly the trade balance. On top of that, private sector hiring slowed sharply, with ADP reporting just 62,000 new jobs in April, a far cry from the pace needed to signal robust economic momentum.
Naturally, Donald Trump had thoughts. As always, he did not hold back. Speaking on Wednesday, he offered a characteristically confident diagnosis of the economy’s recent stumbles. The US stock market? The GDP contraction? Slowing job growth? All Biden’s fault, apparently. “This is Biden’s Stock Market,” Trump declared. “I did not take over until January 20.”
What Trump made especially clear is what not to blame tariffs. Hello, can someone remind him that tariffs are not invisible? They influence input costs for businesses, they cloud corporate earnings visibility, they distort trade flows, and they erode global sentiment.
Most discussions have centered on the impact of rising prices on consumers, but we should be more concerned about the survival of small businesses that depend on low-cost imports. They lack the economies of scale to absorb tariffs that could wipe out their gross margins, let alone the spare cash to go shopping for new suppliers.
The longer it takes for Trump and China to reach a trade resolution, the greater the damage to the US economy. If trade talks do not pick up in May, building on April’s modest softening and slow backpedaling, the US economy may enter a recession this summer.
