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A cloud of uncertainty hovered into the US economy in the first half of 2025 threatens to unleash a thunderstorm that weakens growth in the second half as President Donald Trump’s higher tariffs clash with consumers and immigration crackdowns are shaking the job market.
Growth has already slowed, but on July 10, Trump increased the risk of more prominent pullbacks by announcing plans to raise tariff rates on many Canadian imports from 25% to 35%, imposing a 15% to 20% obligation in most other countries. On July 12, tariff threats rose again, with Trump announcing a 30% tariff on all imports from Mexico and the European Union.
In the spring, Trump announced a 90-day suspension on double-digit, double-digit mutual tariffs on China and many other countries, easing the fear of the recession and reversed the stock market sale. This week, White House officials extended their grace to August 1st to provide more time for negotiations.
Recently, however, Trump has ratcheted trade threats again, announcing plans for a tariff of 50% on imported copper, 50% on all freight from Brazil, and high rates from 14 countries that will not reach deals with the US by August 1. It’s already enabled.
The Dow Jones industrial average fell nearly 280 points on July 11th due to Trump’s latest tariff threat.
“The Barclays American economist Jonathan Miller has said:
Just 42% of small business CEOs are the lowest in record records up to 2003, according to a June survey by CEO networking group Vistage, and are expected to add to staff next year.
How close is the US to a recession?
Ey-Parthenon chief economist Gregory Daco has cut the chance of a recession this year from 50% to 35%, but said the chances of a recession would be above 50% if Trump returns to tariffs that it unfolded in early April.
Even without the harsh import fees Trump recently announced, economists have been predicting a marked slowdown in growth for the rest of the year.
“We carry far less economic momentum to soften market trends in the labour market, re-inflation and calm revenue (growth) more,” Dako said.
Will tariffs lead to inflation?
Forecasters are surprised that tariffs have not yet had a major impact on inflation. Daco said it was because manufacturers and retailers stocked foreign goods in February and March before the fees went into effect.
He also said companies are routing products through bonded warehouses that delay customs payments. US businesses and foreign exporters are absorbing a lot of expenses. Inflation reports such as the consumer price index do not increase tariff prices.
But all of these tactics can delay the inevitable for a very long time, Dako said.
“When stock buffers are thin, bonding warehouse timelines expire and cost absorption runs through the course, price pressures begin to surface more clearly until late 2025,” he wrote to his client in a note.
Before Trump escalated the trade dispute, many economists said the taxation had pushed the average US tariff rate from about 3% to 15%.
How does immigration have an impact on the economy?
Meanwhile, the surge in immigration that has strengthened the growth of U.S. labor supply and employment in the past few years, noted in a research note last week.
The Trump administration has ended provisions that temporarily protect immigrants, who lack permanent legal status from deportation for humanitarian reasons. JPMorgan Chase said this would likely result in about 1.8 million migrants, including around 1.1 million workers, to lose their legal status. The industries that are particularly affected are agriculture, construction and hospitality.
Already, net immigration has slowed to an annual rate, which is expected to reach 500,000 by the year, from around 3 million in the past few years. This is comparable to the 900,000 annual percentage before the pandemic. The slowdown is predicted to reduce job growth, but predictors thought it would take some time as many migrants who have arrived in the recent wave are still settling on work.
But the surge in deportation could quickly slow the American employment engine within months, Jpmorgan Chase said.
How is the economy now?
The economy shrunk at an annual rate of 0.5% in the first quarter, but the forecaster said it was mainly because floods of imports from stock accumulation had to be deducted from the production (because they are made abroad). Private domestic demand, a more prominent measure of health underlying the economy, has increased a solid 1.9%.
And the government estimates that the government will report 2% growth in the second quarter later this month, according to a survey by Wolters Kluwer Blue Economic Indicators.
However, these predictors predict that quarterly growth averages only 0.7% for the second half of the year, in line with Miller’s estimates. Gain DACO projects above 0.5%. It’s close to stall speed.
From the fourth quarter of 2024 to the fourth quarter of 2025, Miller estimates that the economy will grow to just 0.5%, 0.5%, compared to 2.5% the previous year.
This is the fault:
Consumer spending
Resilient households have supported the economy for the past few years, but the threat of rising prices caused by tariffs has curtailed Americans’ spending, said Dako and Miller. Currently, actual pass-throughs of fees to prices are likely to have a concrete impact on consumption, Daco said.
Consumers are particularly reducing discretionary purchases, including recreational services, travel and food.
Income has also been eased, with average annual wage growth falling from about 6% in early 2022 to 3.7% in June.
According to a Wolters Kluwer survey, consumer spending is expected to fall by 0.3% in May after adjusting for inflation and rise by just 0.7% in the second half of the year. Consumption accounts for 70% of economic activity.
Job Market
Average monthly employment growth slowed to 130,000 from 168,000 this year in 2024.
Companies are rapidly cutting jobs amid tariff-related uncertainty, but are reluctant to fire workers after severe pandemic-related labor shortages, Miller said. But Daco said more companies are eliminating workers through attrition and retirement, not just targeted layoffs.
Tracy Marlowe, CEO of Creative Noggin, a San Antonio, Texas-based marketing company, said sales were flat last year amidst election-related uncertainty. After the election, clients began demanding new campaigns, but again retreated in early 2025 amid Trump’s repeated, repeated tariffs.
Marlowe had planned to add full-time employees to its 20 staff later this year, but decided to refrain.
The client “just try to understand how to stay alive,” she said. “I’ll hire someone if they need it.”
It was easy to deal with the Great Recession and the COVID-19 slump, Marlowe said. Because she knew the roadmap for recovery. In contrast, the trade war was “a constantly changing roller coaster… it will be extremely difficult to predict what will happen next.”
The immigration crackdown is set to slow employment growth even further, Dako said.
Business Investment
Business capital expenditures skyrocketed in the first quarter as businesses have stock prior to tariffs. However, economists surveyed by Wolters Kluwer hope that spending will fall in the second, third and fourth quarters.
Companies already looming towards increasing spending amid uncertainty are likely to be even more latent as import costs absorb squeeze profits, Dako said.
housing
According to Oxford Economics, housing openings fell 9.8% in May, and single-family openings have fallen 16% since February.
“As higher interest rates and increased building materials costs due to tariffs, construction is less profitable,” Oxford said in a research note.
