Trade barriers, specifically tariffs, aren't the most pressing issue globally at this moment.

Revised Article:

The genuine threat lurking over the US and global economy isn't just the unorthodox trade policies of the Trump administration – while these will undeniably inflict economic damage – but the relentless wave of uncertainty generated by the continual barrage of social media proclamations, policy shifts, threats, and about-faces.

US President Donald Trump's mercurial economic policy stance is merely one piece of the puzzle contributing to the extraordinarily diverse set of scenarios the world is grappling with, ranging from Artificial Intelligence (AI) evolution, escalating climate catastrophes, ongoing conflicts in Europe and the Middle East, to the burgeoning global trade war and the undermining of the US's dominant role in the global financial system.

Even the International Monetary Fund (IMF) acknowledged this in its April 2025 World Economic Outlook: "The global economic system that most countries have relied on for the past eight decades is undergoing a transformation, heralding a new era. Existing rules are being challenged while new ones are yet to emerge."

Bloomberg Opinion columnist Justin Fox succinctly encapsulated the situation in the title of his recent column: "Economic uncertainty has never felt so uncertain." One might argue that the title of the 2022 movie Everything Everywhere All at Once provides an equally fitting description.

Trump's tumultuous trade policies have already started taking an economic toll on US and global economies. But is the brewing global trade war alone enough to plunge the US economy into recession? There's debate on that front, with the Budget Lab at Yale estimating in mid-April that the economic effect of existing trade tariffs amounts to about 1.1% of US GDP in 2025 alone.

However, the general turbulence concerning US trade policy, coupled with chaotic attempts to cut federal spending and Trump's threats towards the Federal Reserve's independence, is likely taking a heavier toll on economic activity in the US. JPMorgan recently suggested that if "current policies remain unchanged, then the probability of a US recession in 2025 is 90%."

Measuring the economic impact of uncertainty is trickier than estimating the cost of tariffs. Nonetheless, a gauge of the prevailing level of economic policy uncertainty appears to be a good starting point.

One effort to measure uncertainty's effect was initiated following the global financial crisis (mid-2007 to early 2009) when the US Fed enacted extraordinary monetary policy measures, such as slashing interest rates to near zero and providing banks with $7.7 trillion in emergency loans via a policy known as quantitative easing. The Obama administration was simultaneously pushing through banking regulation and health-care reform, among other legislative measures.

Business leaders at the time grumbled that the resulting policy uncertainty made it difficult for them to plan and invest. This triggered a group of economists to investigate whether policy uncertainty truly led to an actual economic burden.

Policy Uncertainty's Tangible Implications

Policy uncertainty affects economic activity and investment decisions through several avenues:

Delayed Business Investment

Firms tend to adopt a wait-and-see approach when confronted with policy ambiguity, postponing significant capital expenditures and long-term projects. Recent tariff-related uncertainty alone could cause a ~5% decrease in business investment growth, with a 45% probability of outright declines in capital expenditures over the next year[3]. Manufacturers find it challenging to make supply chain decisions amid shifting trade policies, especially when retaliatory tariffs jeopardize established networks[2][5].

Sluggish Hiring and Employment

Uncertainty about tariffs and potential government spending cuts stifles job growth. Firms hesitate to hire, fearing overstaffing if demand weakens due to policy shocks, exacerbating labor market risks[3][4].

Financial Market Volatility

Policy uncertainty sparks equity sell-offs (e.g., S&P 500 dropped 17.4% in early 2025) and bond yield fluctuations, raising borrowing costs and decreasing credit availability[2][5]. Enhanced volatility erodes consumer and investor confidence, weakening discretionary spending[1][2].

Cautious Consumer Behavior

Households boost precautionary savings and delay major purchases (e.g., homes, vehicles) due to fears of inflation, job losses, or reduced income. Consumer sentiment recently reached a 28-month low as tariff apprehensions dimmed outlooks[2][5].

Global Spillovers

US-instigated uncertainty reduces cross-border lending and tightens credit standards, particularly in emerging markets. Financial institutions shy away from riskier assets, increasing costs for foreign borrowers and hindering global trade[1][5].

Key Mechanisms

Economic Policy Uncertainty Index Effects: Rising scores on the Economic Policy Uncertainty Index correlate with declines in GDP, investment, and employment[1].
Sectoral Strains: Industries dependent on global supply chains (e.g., manufacturing, tech) face intense pressure from tariff unpredictability[2][4].
Monetary Policy Dilemmas: The Fed grapples with balancing inflation risks from tariffs against growth concerns, making rate decisions more complex[5].

This interplay of decreased investment, cautious hiring, and weakened demand amplifies recession risks during prolonged uncertainty[1][3][5].

The ongoing economic uncertainty, as succinctly stated by columnist Justin Fox, is not only making businesses hesitant to invest but also causing a delay in significant capital expenditures and long-term projects.
The global spillovers of US-instigated uncertainty are reducing cross-border lending and tightening credit standards, particularly in emerging markets, making it harder for foreign borrowers and hindering global trade.
The sluggish hiring and employment in the US are directly related to the uncertainty about tariffs and potential government spending cuts, causing firms to hesitate to hire, fearing overstaffing if demand weakens due to policy shocks.
The Economic Policy Uncertainty Index is showing a correlation with declines in GDP, investment, and employment, indicating a direct impact on the economy.
The industries that are most susceptible to global supply chain disruptions, such as manufacturing and tech, are facing immense pressure due to tariff unpredictability.
The financial market volatility caused by policy uncertainty is leading to equity sell-offs, bond yield fluctuations, increased borrowing costs, and decreased credit availability, eroding consumer and investor confidence.
Trade-related uncertainty alone could cause a significant decrease in business investment growth, with a high likelihood of outright declines in capital expenditures over the next year.
Manufacturers are finding it challenging to make supply chain decisions amid shifting trade policies, especially when retaliatory tariffs jeopardize established networks.
Households are boosting their precautionary savings and delaying major purchases due to fears of inflation, job losses, or reduced income, as seen in a recent 28-month low in consumer sentiment.
The Federal Reserve is grappling with balancing inflation risks from tariffs against growth concerns, making rate decisions more complex in the face of prolonged economic uncertainty.