Okay, let’s talk about something wild.
You’d think slapping 10% tariffs on all imports — plus up to 51.1% on Chinese goods and 30% on those from the EU/Mexico — would send the dollar into freefall. Yet here we are: the dollar is holding strong, stocks are climbing, and companies like Edwards Lifesciences are shrugging off tariff impacts like minor speed bumps. What gives?
⚡️ The GDP Shock That Wasn’t (Quite)
Start with the headline that made everyone panic: Q1 2025 GDP dropped 0.3% — the first contraction since 2022. Dig deeper, though, and the story gets nuanced:
- The import tsunami: Businesses raced to stockpile goods before tariffs hit, spiking imports by 41.3% — the largest jump since 2020. This alone slashed 5 percentage points off GDP (the worst drag since 1947!).
- Consumer spending slowed (just +1.8%), but underlying demand stayed robust. Private domestic sales rose 3%.
- The Biden-Trump blame game: Trump called it “Biden’s stock market,” but economists pinned it squarely on tariff chaos.
Verdict: A temporary inventory surge distorted the data. Not great, but not apocalyptic.
🤷 Why Markets Stopped Caring
Here’s where it gets fascinating. Despite tariff whiplash — threats against Mexico/Canada, court battles reinstating levies, then pauses — markets barely flinched. Why?
- The “TACO Effect” (Trump Always Chickens Out):
Traders now treat Trump’s threats as bargaining chips, not policy. When he vowed 25% tariffs on Mexico/Canada, the S&P 500 rose 0.9%. After a court reinstated tariffs post-block, stocks closed up 0.4%. As one portfolio manager put it: “Markets are numb. We’ll believe tariffs when we see them”. - Corporate Jiu-Jitsu:
Companies preempted pain. Edwards Lifesciences absorbed tariff hits (just 5¢/share earnings impact) by shifting production and hiking prices. Others accelerated imports or re-routed supply chains. - The Dollar’s Safe-Haven Magnet:
With U.S. rates at 4.4% (10-year Treasury), global capital flooded dollar assets. Tariffs couldn’t compete with that yield.
📉 The Looming Recession Risk (That Trump Denies)
Don’t mistake resilience for immunity. Beneath the calm:
- Consumer confidence near 5-year lows; airlines nixed 2025 forecasts over spending fears.
- JPMorgan’s warning: Tariffs could push unemployment to 5.3% and GDP to -0.3% for 2025.
- Long-term shrinkage: Even optimists admit tariffs could make the economy 0.5% smaller.
Trump insists tariffs will “supercharge” growth, but economists see a 25% chance of overheating and a 15% chance of retaliation-driven collapse.
💡 The Bottom Line
Tariffs are taxes — regressive ones. They cost households ~$2,800/year and did trigger a GDP dip. Yet the dollar endures because:
- ➡️ Markets discount Trump’s threats as theater,
- ➡️ Corporations adapt faster than policies solidify,
- ➡️ Rate spreads trump trade costs for investors.
The reprieve won’t last if tariffs morph from threats to sustained policy. For now? The economy’s playing chicken with volatility — and winning.
Sources: Nasdaq [1], NY Post [2], The Guardian [3], Reuters [4], ABC News [5], S&P Global [6], The Week [7], Yahoo Finance [8]