U.S. economy defies recession fears despite Trump tariffs and trade disruption

U.S. Economy Shows Unexpected Strength Amid Trade Tensions and Tariff Headwinds

Job growth, steady spending, and market gains suggest resilience — for now

Despite mounting pressure from new tariffs, trade disruptions, and growing global uncertainty, the U.S. economy continues to demonstrate surprising resilience. The latest data reveals that employment remains robust, the stock market has bounced back from recent lows, and consumer spending is holding up — even as businesses, investors, and households grow increasingly uneasy about the future.

President Trump’s aggressive trade policies, including a 145% tariff on Chinese imports, have rattled supply chains and dented confidence. But so far, the economic fundamentals have not cracked.

Economists’ probability of a recession in the next yearEconomists’ probability of a recession in the next year

Solid labor market defies gloomy forecasts

April’s jobs report once again surprised on the upside. Employers added more jobs than many economists had anticipated, with the U.S. averaging 155,000 new positions over the past three months, only slightly below the 2024 monthly average. Unemployment remains low, and initial jobless claims have stayed near historic lows, signaling that companies are still reluctant to lay off workers.

“The actual data from the U.S. labor market failed to justify the anxiety,” said Cory Stahle, economist at Indeed Hiring Lab. “The labor market stayed strong, seemingly immune to mounting uncertainty.”
 

Job openings per unemployed person

GDP shows contraction, but fundamentals hold

The economy contracted by 0.3% in the first quarter, but analysts say that figure is misleading. Much of the decline was due to a surge in imports ahead of expected tariffs — a phenomenon that skewed the GDP calculation. Consumer spending still rose by 1.8%, although at the slowest pace since mid-2023.

Business investment held firm, even as federal spending fell, driven primarily by a drop in military purchases.

Trade’s contribution to quarterly change in real GDP

Stock market rallies as rate cut hopes fade

April’s economic strength has led investors to scale back expectations for Federal Reserve interest rate cuts. Futures now imply less than a 40% chance of a rate cut in June, down from nearly 70% a month ago. The Fed is widely expected to hold rates steady at its next meeting.

Meanwhile, the stock market has rallied, reversing sharp April losses. This has buoyed consumer wealth and sentiment — though not enough to erase all the damage caused by rising costs.

Tariffs trigger price hikes, reduce corporate guidance

The tariffs are causing visible economic strain. Cargo volumes from China have plummeted, and major retailers are warning of higher prices and product shortages. Consumer brands such as Procter & Gamble, Church & Dwight, Starbucks, and McDonald’s reported slower U.S. sales last quarter.

“Low- and middle-income consumers are being weighed down by inflation and heightened anxiety,” said McDonald’s CEO Christopher Kempczinski.

The corporate outlook is increasingly cautious. Apple warned that tariffs could add $900 million to costs this quarter. General Motors expects tariffs to slash its annual net profit by up to 25%. Many large firms have stopped issuing earnings guidance and are cutting costs instead.

Consumer and business confidence sinks

According to the University of Michigan, 65% of Americans now expect unemployment to rise over the next year — a sharp increase from earlier in 2025. The Conference Board’s consumer confidence index fell to its lowest level since May 2020.

Small businesses, which account for 80% of U.S. employment, face the greatest risk. With limited capacity to absorb higher costs or secure alternate supply chains, they are vulnerable to prolonged disruption.

Tariffs stall expansion plans and reshape global ties

Manufacturers, especially those reliant on international components, have had to shelve expansion projects. One German-owned company in Illinois canceled a major equipment order from China due to new tariffs, halting plans to create new U.S. jobs.

Meanwhile, the Institute for Supply Management reported that U.S. manufacturing activity contracted again in April, citing tariff-driven uncertainty as a key factor.

Even tourism has taken a hit, with Las Vegas visitor numbers down 7.8% year-over-year and Canadian tourists boycotting U.S. vacations in protest of Trump’s policies.

Retail sales slow as caution spreads

Preliminary data from the Chicago Fed shows that retail sales excluding autos declined 0.5% in April, adjusted for inflation — a notable reversal after a 1% rise in March. Many consumers appear to have front-loaded purchases ahead of expected price hikes.

Recession fears linger, though forecasts diverge

The probability of a recession within the next year has climbed to 45%, up from 22% in January, according to economists surveyed by The Wall Street Journal. Still, that’s lower than the 63% peak prediction in October 2022 — a downturn that never materialized.

Some, like Gregory Daco at EY-Parthenon, have lowered their recession odds recently, betting that the administration will moderate tariffs in response to mounting pressure. But others, such as JPMorgan’s Mike Feroli, warn that risks remain elevated.

“Absent the experience of 2022 and 2023, I think people would say, ‘Oh, we’re definitely going into a recession,’” Feroli said.

The ripple effects of strained trade relations

The trade fallout is hitting exporters too. Florida-based Wish Farms, a major berry producer, has lost Canadian clients amid political backlash, erasing 10% of its sales. Others, like Logan Clutch Corporation in Ohio, have turned to automation and local sourcing to blunt the impact, though they warn that a broader shift to domestic production could strain U.S. supply chains and raise long-term costs.

Despite global volatility, inflationary pressures, and unpredictable policy swings, the U.S. economy continues to show underlying strength — though cracks are forming. With confidence faltering and trade tensions escalating, the next few months will be critical in determining whether resilience can hold.

Stay tuned to The Horizons Times for deeper coverage on how policy and markets are shaping America’s economic future.