Trump's 'Rosy Outlook'... Inflation, Consumption, and Employment Unavoidably Hit [De-Globalization? New Order!] ⑦

What Lies Ahead for the U.S. Economy?
Eight Months of Trump: Mixed Economic Signals
Growth Concerns Amid Tariff-Driven Inflation
Anti-Immigration Policies Fuel Labor Shortages and Rising Prices
"Unlikely to Abandon Tariff Policy Despite Risks"

"Tariffs have become the defining feature of Trump's second-term economic agenda."

Donald Trump, President of the United States Yonhap News

As the Washington Post pointed out, the key word that defines the second-term economy of Donald Trump is undoubtedly "tariffs." Upon taking office on January 20 of this year, President Trump championed "America First," and his first move under the banner of reviving manufacturing and restoring jobs was to implement tariffs. The fact that the United States, long a supporter of free trade, erected high tariff barriers within just a few months is a testament to the challenging economic conditions. The Trump administration identified chronic issues in the U.S. economy, such as concerns over economic slowdown, widening fiscal deficits, and deindustrialization, and proposed tariffs as the solution. The real question is whether tariffs will prove to be a remedy that transforms the structure of the U.S. economy or whether they will backfire. At this point, it is difficult to make a clear judgment.

President Trump unleashed a tariff shock on the world on April 2. He declared the day "Liberation Day," announcing a universal tariff of at least 10% on all imported goods and imposing tariffs as high as 145% on certain countries. As President Trump ignited a "tariff war" on a global scale, U.S. financial markets became highly volatile. The three major New York stock indices-the Dow Jones, S&P 500, and Nasdaq-plunged by over 3% to 5%, and Treasury yields soared to the 4.5% range. Typically, imposing tariffs would strengthen the dollar, but this time, the dollar's value dropped by about 5% against major currencies. This indicates that investors viewed the U.S. market with growing anxiety. Later, when President Trump announced a temporary suspension of reciprocal tariffs, the markets regained stability.

During the eight months following the launch of Trump's second term, the U.S. economy sent mixed signals. At least on the surface, it appeared robust. Around 800,000 new jobs were created in the first half of this year, and the unemployment rate held at 4.1%, indicating full employment. According to Bloomberg, as of the second quarter of this year, 80% of S&P 500 companies posted earnings that exceeded market expectations. After a temporary correction triggered by the reciprocal tariff-induced crash, the stock market rebounded.

However, a closer look reveals that private-sector employment slowed, the housing market fell into a slump, and import prices rose. In the first quarter of this year, the U.S. economy posted negative growth (annualized -0.3%) for the first time since the COVID-19 pandemic. According to Reuters, companies rushed to increase imports before tariffs took effect, which led to a record trade deficit. The surge in imports driven by tariffs ultimately caused GDP to decline by 4.83%.

Tariffs have also fueled concerns about inflation. From January to August of this year, the U.S. Consumer Price Index (CPI) remained above the Federal Reserve's target of 2%. It rose from 2.7% in June to 2.9% in August, with tariff-induced price pressures becoming increasingly evident. This is because companies are passing the cost of tariffs on to consumer prices. Goldman Sachs estimated that 22% of tariff costs have already been passed on to consumers and projected that this figure will rise to 67% by this fall. The Peterson Institute for International Economics (PIIE) analyzed that tariffs are weakening investment sentiment and could reduce U.S. GDP by more than 2% in the long term. Such tariff-driven price increases limit consumer spending power and raise corporate costs, posing a significant risk of slowing economic growth.

The issue is that these shocks are not merely short-term. Experts note that consumer behavior is already changing, with early purchases of cars, appliances, and furniture likely to eat into future demand and lead to reduced consumption. In fact, the Wall Street Journal reported that in May, consumers made large purchases of high-priced durable goods like vehicles ahead of President Trump's announced tariff hikes, but as that effect faded, retail sales declined. The same is true for businesses, with more companies delaying investment and restricting new hiring due to uncertainty.

Some argue that tariff revenues could reduce the fiscal deficit and revive manufacturing, but experts dismiss this as an illusion. U.S. Treasury Secretary Scott Besant painted a rosy picture, claiming tariff revenues could reach $500 billion a year, but this falls far short of offsetting a fiscal deficit that is growing at an annual pace of $2 trillion. As long as the Trump administration maintains its current restrictive visa policies, even building factories linked to U.S. investment remains difficult, making a manufacturing revival unlikely. The Congressional Budget Office (CBO) projected that even if tariffs generate over $3 trillion in revenue over 10 years, the long-term GDP growth rate would drop by 0.5 to 0.9 percentage points each year.

Another hallmark of the Trump administration is its strong anti-immigration stance. Since taking office, President Trump has tightened visa issuance and reinforced barriers, intensifying anti-immigration policies. According to analysis by the pro-immigration nonprofit FWD.us, such measures could reduce the U.S. workforce by up to 6 million by 2028. Assuming 1 million people are deported each year, 2.4 million would leave the labor market by 2028. This reduction in the workforce could lead to higher production costs. FWD.us estimates that anti-immigration policies will cause food prices to rise by 14.5% and housing costs by 6.1%. As a result, U.S. households would need to spend an additional $2,150 per year on average through 2028. Labor shortages would increase wage pressures, which in turn would further drive up prices, creating a vicious cycle.

Experts warn that the uncertainty caused by tariffs and the labor force reduction resulting from anti-immigration policies could push the U.S. economy into recession. Moody's Analytics pointed out, "The moment consumer spending falters, the U.S. economy could fall into a recession." The Organisation for Economic Co-operation and Development (OECD) forecasts U.S. economic growth at 1.6% in 2025 and 1.5% in 2026, citing high tariffs, trade friction, and labor force reduction due to lower immigration as major constraints. Goldman Sachs also lowered its U.S. growth forecast for this year to 1.3%, warning that tariffs, price pressures, and uncertainty could dampen consumption and investment.

"There is no chance President Trump will abandon his tariff policy early." This remark by Alan Wolff, Senior Fellow at PIIE, serves as a warning that encapsulates the current situation. As he predicts, despite mounting criticism and concern, President Trump is likely to stick to his tariff policy unless the Supreme Court imposes a final halt. Even if the economic shock materializes, he is unlikely to easily give up the tariff card, which has become a political symbol. This means that throughout President Trump's term, the U.S. economy will likely remain under the shadow of tariff-induced uncertainty.