Introduction
President Donald Trump promised that his second term would mark the beginning of a new golden age. The early economic returns look more like pewter. The Commerce Department on Wednesday estimated that the U.S. economy shrank during the first three months of 2025, its worst performance in three years. The 0.3 percent contraction is a sharp decline from the 2.4 percent expansion that was notched in the final full quarter of President Joe Biden’s presidency, and it’s a far cry from the boom times Trump allies and top CEOs had anticipated after the president was reelected.
Trade War Impact
What’s more, the pro-growth elements of his agenda like the extension of the 2017 tax cuts haven’t materialized, providing little cover for the negative effects of the president’s trade war. “We came into this year with the idea that your tax policy was going to be enough of a tailwind to overcome the negatives from trade,” said Brett Ryan, a senior U.S. economist at Deutsche Bank Securities. “That script has been flipped.” Commerce’s initial estimate is a rough start for a president who was elected on the promise of unleashing private investment and boosting the spending power of American consumers. Recession fears have climbed in the weeks since Trump began rolling out a series of massive tariffs — followed by quick reversals — that economists and Wall Street CEOs say will drive up costs and weaken investment.
Political Consequences
The first-quarter contraction may soon force Trump and his advisers to reckon with the political consequences of an electorate that is quickly souring on major elements of his economic agenda. And it threatens to cut into his political capital at a time when he needs it the most, as he asks the American people to trust him on his aggressive tariff policies. “There is no good news on the economic front. And since he was elected with that as a primary mandate, they have a problem,” said Douglas Holtz-Eakin, the president of American Action Forum who was a top economic adviser to Sen. John McCain (R-Ariz.) during the 2008 presidential campaign.
Consumer Sentiment and Market Reactions
Consumers have grown increasingly pessimistic about the economy. The Conference Board’s monthly survey reported that expectations for the future are now at their lowest level since 2011. The view from the C-suite is equally dreary. Blue-chip companies like Delta Air Lines, GM, and UPS have scrapped financial guidance in light of tariff-related uncertainty, and Republican titans on Wall Street like Citadel’s Ken Griffin and Elliott Investment Management’s Paul Singer have warned that Trump’s policies could undermine the foundations of U.S. markets.
Future Outlook
Until now, dour forecasts about the economy’s future hadn’t translated into any material weaknesses to the economy. Treasury Secretary Scott Bessent said this week that he doesn’t pay attention to the surveys and that the “actual data” on the economy “is actually quite good.” Unemployment remains near historic lows, and Americans spent freely in March. Larry Kudlow, the Fox Business host who led Trump’s National Economic Council during his first administration, dismissed recent polls giving the president dismal marks as skewed. Even so, the weak GDP report suggests that bad vibes are starting to negatively affect real economic output.
Conclusion
Trump’s commitment to imposing record-breaking tariffs, coupled with the uncertainty created by frequent escalations and reversals in the ongoing trade war, has hammered the ability of U.S. companies to plan for future hiring. The Business Roundtable’s quarterly survey of top CEOs reported a sharp decline in the number of businesses that are likely to expand their workforces in the next six months.
