Picture Worth 1000 Words:The Failures of Tariffs

A Picture Is Worth a Thousand Words: expose the widespread economic damage from Trump-era tariffs, including job losses, falling confidence, market volatility, and supply chain shocks.

Trump wants to use tariffs to bring manufacturing back to the U.S., hoping to boost jobs and government revenue—but the gap between ideal and reality is stark.

Looking back at Trump's first term, trade friction with China was already heating up. In 2019, the U.S. imposed tariffs on Chinese furniture. The result? A classic case of backfiring—U.S. furniture prices instantly rose in tandem with the tariffs. Whatever the tariff percentage was, prices rose just as much. Chinese manufacturers didn't budge on pricing. Outside of China, the U.S. couldn't find another country with such a complete and scalable supply chain.

As for job protection? That claim falls flat. During Trump 1.0, the U.S. imposed tariffs on foreign steel to protect domestic steel producers. This move created around 1,000 new steel jobs. But it also caused a spike in U.S. steel prices, which led to lower downstream sales. Industries like automotive and construction lost 75,000 jobs! Analysts now estimate that Trump's new round of reciprocal tariffs will increase U.S. manufacturing employment by just 0.4%, but drag overall employment down by 2%.

Roughly 97% of shoes and clothing sold in the U.S. are imported. China (28.7%), Vietnam (25.4%), and Bangladesh (7.8%) together supply over half of that. While Trump aims to bring manufacturing back home, high labor costs and shortages in the U.S. make it nearly impossible to replace foreign production in the short term. The result? Sharply rising living costs for American consumers.

Trump's tariff frenzy has not only failed to boost employment—it's crushed business confidence and frozen hiring. According to job site LinkUp, job postings by U.S. employers have plummeted since mid-March. The number of open positions is now nearly 4% lower than at the start of 2025.

Not since the financial crisis has Corporate America sounded so pessimistic in earnings calls. That's a red flag for investors. An analysis by bank of america shows that the ratio of positive to negative macroeconomic commentary in earnings calls is headed toward the worst levels since 2009.

April data from the New York Fed's services index shows business outlooks continue to deteriorate—both current sentiment and six-month projections reflect growing pessimism.

It's worth noting that current outlooks haven't yet dropped to the depths seen during the 2008 financial crisis or the 2020 pandemic. But six-month expectations are now worse than during the pandemic, second only to 2008. This indicates that in 2020, businesses were at least hopeful the pandemic would pass. Now, Trump's unpredictable policies have left them with no light at the end of the tunnel.

Economists now estimate a 45% probability that the U.S. will enter a recession within the next 12 months—up significantly from 22% at the start of the year.

Morgan Stanley expects that China and the U.S. will reopen trade negotiations in the coming months. To relieve supply chain pressures and push for a new agreement, the U.S. may scrap the 20% fentanyl-related tariff on Chinese goods and reduce other reciprocal tariffs to 60% within one to two months. Including various exemptions, the average tariff rate could fall back to 34%.

Now, let's examine the impact of tariffs on U.S. stocks:

Tech giants like meta, Google, and Microsoft earn heavily from ads and software subscriptions—often thought to be insulated from tariff battles. But they're not immune. Much of their ad revenue comes from retail clients selling physical goods. When tariffs disrupt sales, ad budgets shrink.

U.S. tech companies are also highly reliant on Chinese advertisers. Meta's earnings reveal that revenue from China reached $18.4 billion last year—more than 10% of its total $165 billion. If Chinese e-commerce firms cut spending, Meta could lose up to $7 billion in ad revenue. In fact, Temu and Shein already began slashing ad budgets on Meta and Google starting April.

The "Magnificent Seven" stocks have been Wall Street's brightest stars, outpacing the broader S&P 493. But reversion to the mean is inevitable—no company dominates forever. For 2025, analysts expect 15.9% EPS growth for the Seven, while the S&P 493 is forecasted to grow 8.3%. By 2026, the gap is expected to narrow even further.

Tariffs hit U.S. stocks—and by extension, U.S. consumers. Since much of American household wealth is tied up in the stock market, consumer spending is highly sensitive to stock swings. In late 2018, during a market downturn, retail sales (excluding autos and gas) flipped negative almost in lockstep with the falling stock index.

Trump's erratic tariff policies have left corporate leaders bewildered. Many are now withdrawing earnings guidance. The percentage of U.S. companies providing quarterly EPS guidance has plunged from over 35% in 2010 to around 20% today.

Lastly, let's take a look at commodities: gold is in high demand, while oil is being dragged down.

Gold prices are climbing fast. In March alone, global gold ETFs saw $8.6 billion in net inflows. The total for Q1 2025 reached $21 billion—the second-strongest quarter in history, only behind the panic-buying of early 2020.

As the king of commodities, oil is inevitably impacted by trade wars. Recently, the EIA, IEA, and OPEC have all slashed forecasts for global oil demand growth in 2025 and 2026. The EIA, for instance, now projects a daily increase of just 900,000 barrels in 2025—down sharply from the 1.3 million barrels forecast just a month ago.