By Greg Ip
April 20, 2025
The Wall Street Journal
Fears that tariffs, spending cuts, deportations would lead to recession and inflation have yet to show up in the numbers.
Imagine you didn’t follow the news or social media and watched the world only through economic data. You would not have guessed the White House changed hands in January.
President Trump’s deportations, tariffs, federal layoffs and funding suspensions have generated nonstop headlines and frayed confidence, yet left surprisingly little trace on the economy. Hiring, spending and inflation look a lot like they did under Joe Biden.
The disconnect is deeply disorienting. United Airlines, calling the economic environment “impossible to predict,” this past week issued two outlooks for earnings: one with recession, and one without.
Economists surveyed by The Wall Street Journal think that hiring will slow sharply this year and that inflation will shoot up. So far, there’s little evidence of either. Job growth has averaged 173,000 over the past two months combined, almost the same as that of the prior six months. The unemployment rate has averaged 4.2%, a tenth of a point higher than the prior six months. Both overall inflation and the Federal Reserve’s preferred measure of underlying price pressures have averaged a tenth of a point less.
Elon Musk once said he could slash federal spending by $2 trillion. His Department of Government Efficiency, or DOGE, now claims a more modest $155 billion in savings. Yet in the first 80 days of Trump’s administration, federal spending was $154 billion higher than in the equivalent period a year earlier, a Journal analysis found.
DOGE aimed to get rid of up to 10% of federal employees—about 240,000. Through February and March, though, federal employment excluding the post office is down just 10,100. Claims for unemployment insurance by former federal employees spiked in late February and early March but recently have averaged just a few hundred more per week than a year earlier.
Meanwhile, despite a border crackdown and deportation push, the number of foreign-born workers continued to grow in recent months, though the data, based on a monthly Labor Department sample, might not be fully reliable.
Trump’s tariffs seem to have led to higher wholesale prices of steel, aluminum and related products. But not much is happening at the consumer level.
Gross domestic product, after growing 2.5% over 2024, is likely to be flat in the first quarter or even contract. But that seems to reflect unusual import behavior and the effect of weather on consumption.
Behind the disconnect
All of this should make us wonder: Is Trump really changing the economy as much as we—and he—think?
One obvious reason for the disconnect between the headlines and the data is time lags. Trump’s first tariffs, on Canada, Mexico and China, took effect March 4; tariffs on steel and aluminum followed on March 12. His much bigger 10% universal tariff and 145% tariff on China took effect in early April. Tariffs on autos took effect in early April and will take effect on parts next month. Those tariffs won’t show up until April data is released, in May. High reciprocal tariffs on major trading partners have been paused.
And since importers stocked up ahead of tariffs, it could be months before many newly levied tariffs get passed through to the final consumer. The foreign-born labor force could continue to swell with migrants who entered months ago, and federal employees who accepted deferred resignation could stay on the payroll until September.
Another explanation is that the U.S. economy is enormous. It is subject to countless influences, and actions by the president, even one as disruptive as Trump, aren’t necessarily dominant. For example, while stocks sold off in response to Trump’s tariff plans, they may have fallen anyway, having entered the year historically overvalued.
Much of last year’s rally reflected enthusiasm about artificial intelligence. Last Wednesday’s selloff, triggered not by tariffs but by new Trump restrictions on AI chip sales to China that built on steps taken by Biden, may reflect expectations coming back to earth.
Feedback mechanisms
Finally, the president’s policies trigger feedback mechanisms that often offset the initial impulse. Some of that feedback is economic. For example, Trump’s tariff threats have darkened the outlook for global growth. That has knocked down global oil prices, as has a decision by the Organization of the Petroleum Exporting Countries to increase output—which Trump has been pushing for.
Airline airfares have fallen in the past two months in the face of softening demand, possibly reflecting DOGE restrictions on federal employees and foreigners uneasy about U.S. border-control policies. Gasoline and airfares contributed to a surprising drop in seasonally adjusted consumer prices in March from February.
Some of the feedback is behavioral. Trump had promised the largest deportation in history, but his daily removals through early March were actually running below fiscal 2024 levels, when Biden was president, according to the nonpartisan Transactional Records Access Clearinghouse. There might be fewer people to deport because illegal border crossings have plummeted under Trump and vulnerable migrants inside the country are trying harder to avoid the authorities.
To avoid raising prices because of tariffs, some companies have suspended shipping certain products, or are working through inventories built up ahead of time.
Finally, there’s political feedback. When a president acts, opponents pull every available lever to resist. Some of those levers aren’t operating now: Trump has total control of Republicans and thus Congress, while Democrats are in disarray. His exercise of presidential power has also blown through past norms—and possibly legal limits.
But courts are stepping in, staying some of his deportation efforts and federal layoffs.
Tariffs, Trump’s most economically disruptive initiative, so far face no opposition from either courts or Congress. But they have scared investors and businesses who are making their views known. And the White House appears to be listening, prompting Trump to pause many tariffs, announce exemptions for products such as smartphones and initiate negotiations with trading partners.
That walkback, in turn, will likely change behavior: Companies might now hesitate to change prices or sourcing if they think that tariffs ultimately won’t rise that much. Meanwhile, other countries won’t retaliate while negotiations seem promising.
So Trump hasn’t left much of an impression on the economy yet. Don’t assume that will last. Trump changes his mind a lot, but not his ultimate goals.