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The longer business leaders feel uncertain about President Donald Trump’s tariff plans, the more they could delay making big investments, dragging down economic growth.
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Elevated uncertainty could drag down business investment by 14% if it goes on for Trump’s entire four-year presidential term, according to a recent analysis.
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A measure of U.S. trade policy uncertainty shot up to its highest level on record in February as Trump announced, and then delayed or revised multiple tariff policies.
Consumers and business leaders don’t know what President Donald Trump is going to do next when it comes to tariffs, and the longer that goes on, the more it could damage the economy.
That’s according to economists at Oxford Economics, who analyzed the effect of policy uncertainty on business investment. The uncertainty over the final outcome of Trump’s on-again, off-again tariff announcements is on track to drag down U.S. business investment by 4% this year, Michael Saunders, senior advisor, and Daniel Harenberg, lead economist at Oxford, wrote in a commentary Tuesday.
Investment could quickly rebound next year if the uncertainty settles down, but could fall by as much as 14% if uncertainty stays high through Trump’s entire four-year term of office, they wrote.
The research highlights one of the major ways Trump’s threats to impose tariffs on trading partners could impact the economy, regardless of what policies end up actually going into effect. Trump has kept business leaders, consumers, and foreign countries guessing in recent weeks, several times announcing tariffs weeks in advance, only to delay them or modify them at the last minute. A new round of tariffs is set to go into effect starting April 2.
Economists have warned of many negative effects of tariffs, including higher prices for consumers, higher risks of inflation, potential job losses and the possibility of a recession. The Trump administration has argued tariffs will encourage businesses to relocate factories to the U.S., raise revenue for the government to replace income taxes, and help negotiate to get other countries to lower their own trade barriers.
When companies are thinking about how much to spend on equipment, buildings, research, and other projects to increase their productive capacity, they’re long-term decisions, said Jadrian Wooten, a professor of economics at Virginia Tech. Uncertain policy on trade can make betting on the future risky.
“If they don’t know what’s going to happen, you hold back, you wait,” Wooten said. “And that sort of hesitation—whether it’s for businesses making investment decisions, households making consumption decisions—if enough of those people start doing it, that’s where you get into recession stages.”
For example, the long-term plans of auto manufacturers were thrown into confusion last month when Trump announced 25% tariffs on products from Mexico and Canada. Companies like GM, Stellantis, Ford, and Toyota have factories in all three North American countries, and completed vehicles incorporate parts that cross the borders multiple times.
