US, Michigan Face Tariff Whiplash Strain
Economic forecasts are always, by their nature, hazy. A risk here, a caveat there. But with the recent onslaught of tariff action, risks have multiplied significantly.
Still, University of Michigan economists, who released their U.S. and state economic outlooks on Friday, believe the economy remains mostly healthy despite the negative real gross domestic product growth reading earlier this year.
“Outside of the surge of imports, potential early effects of tariffs are quite hard to spot in the official economic statistics, but we expect the tariffs to start to drag on consumption and investment this summer after the rush to beat tariffs over the past several months,” said U-M economic forecaster Daniil Manaenkov.
Fiscal and monetary policy is expected to help soothe the pain of tariffs somewhat by 2026.
“While Congress is working on a fiscal package that would put about $200 billion back into the private sector’s pockets, the odds are slim that it will arrive before next year,” said report co-author Yinuo Zhang. “We expect the Federal Reserve to resume cutting rates this summer, but we think it will do so gradually to ensure tariff-induced price jumps do not turn into lasting inflation.”
Overall, they call the state of the economy “steady but vulnerable.” Here are some highlights of what they expect:
Trade policy clearly is the wildest of wildcards in the forecast, presenting a range of possible outcomes and an unclear timeline for resolution.
For example, the economists expect U.S. passenger vehicle sales to drop sharply, from an annual pace of 16.4 million in the first quarter of this year to 14.8 million in the third quarter once the tariffs on vehicle imports push up vehicle prices. As automakers adapt to the tariffs and adjust supply chains, they say vehicle sales should partly recover to 15.3 million units by 2027.
The numbers are a moving target as tariff negotiations continue, but researchers estimate the tariffs on the auto sector-along with steel and aluminum-will reduce Michigan’s employment by roughly 13,000 jobs over the next several years.
In the tariff talks between the Trump administration and numerous nations, they note “the timing of tangible progress toward a global de-escalation remains highly uncertain.” The economists nonetheless forecast tariff revenue to reach “an unprecedented level, at the cost of higher inflation and slower economic growth.”
“The mercurial nature of recent trade policy announcements likely fueled growing pessimism about the economic outlook and price pressures, as indicated by numerous surveys,” the economists write. “However, it remains to be seen how much of that forward-looking trepidation will filter into the real economy.”
The forecasts’ authors, all from U-M’s Research Seminar in Quantitative Economics, are Jacob Burton, Gabriel Ehrlich, Kyle Henson, Daniil Manaenkov, Michael McWilliams, Niaoniao You and Yinuo Zhang.
https://news.umich.edu/economic-forecast-us-michigan-vulnerable-to-tariff-whiplash-strain/