While we did not change our macroeconomic forecasts, we did warn our clients and readers that the tariffs would nevertheless have an impact.
“Are you going to change your macroeconomic outlook due to the tariffs?”
We were asked this often starting in the first half of 2025, when the Trump administration announced tariffs of greater scope and intensity — and with fewer loopholes — than those of his first term.
What We Did Not Do
We did not change our macroeconomic forecasts, and some were surprised by that.
We noted that, at the time, leading indicators were rising, consumers were buying record volumes of goods and services, and corporate profits were at record highs.
“The economy has a lot of momentum, as consumers still want to be able to improve their lives with new and higher quality products, businesses are still striving to create value and use resources efficiently, and investors still want to make a return on their money,” we wrote in the April 2025 Executive Summary for the ITR Trends Report™. “Tariffs are a stumbling block but are unlikely to bring the economy to a screeching halt.”
What Happened
Now that a year has gone by, we think the data shows that we made the right call.
The chart shows the growth rates for three core measures of economy against the forecasts that we had in place before the 2025 tariff announcement.
(The 12/12 is the rate-of-change between the most recent 12 months and those same 12 months from one year prior. The 3/12 (used for GDP) is the rate of change between the most recent three months versus those same three months from one year prior. More information about our methodology is available here.)
What We Did Do
While we did not change our macroeconomic forecasts, we did warn our clients and readers that the tariffs would nevertheless have an impact. Businesses would have to contend with pricing, substitution between goods, pressure on discretionary markets, and margin squeeze.
The impact was more clearly seen at the industry level rather than the macroeconomic level. For some clients and markets — particularly industries tied to big-ticket items hobbled by elevated interest rates — the tariffs created a climate of uncertainty. Businesses hesitated as they struggled with unanswered questions about the tariffs:
- Will they remain in place?
- Will they be lifted?
- Are more coming or is this what we have to deal with?
This led to softer outlooks for markets such as US Single-Family Housing Starts and North America Light Vehicle Production, among others. In addition, while pricing pressures in aggregate were consistent with our outlooks, distortions in particular pricing inputs such as metals and oil occurred, and we revised those forecasts accordingly.
Lessons Learned
The businesses that have worked through the tariffs and ensuing uncertainty learned key lessons, including:
- Microeconomic impacts can be significant even when macroeconomic dynamics do not change much.
- Stay on top of your supply chain — communicating with your suppliers, lining up alternate sources, and being ready to pivot is critical.
- Profits need to be protected — while your raw material costs may be out of your control (unless you locked in costs at the business cycle low of the prior cycle), you can increase efficiency and reduce your dependence on labor.
- Emerging industries with clear tailwinds can offer a haven — many of our clients saw their revenue grow due to involvement in the data center market and other emerging tech markets.
Our Promise
ITR Economics will continue to deliver the best economic intelligence, so you can make profitable business decisions. As an apolitical firm, we strive to focus on the probable impact of the policy in an apolitical manner, rather than following the noise in the headlines or becoming swayed by political posturing on either side of the aisle.
