Economy & Markets
Jun 6, 2025
Will tariffs choke economic growth?
The tariff shock has faded, but it hasn’t disappeared. If, as expected, U.S. tariff rates rise about 10 percentage points to roughly 12%, it would represent the largest one-year tariff hike since 1862.
As a result, U.S. economic growth would likely weaken. We expect a slowdown, but no recession, with U.S. GDP growth down roughly one percentage point over the next 12 months as a result of the tariff announcements in April and May.
To assess how incoming economic data is evolving relative to our outlook, we have created a high-frequency tracker for both hard and soft data. Today, we see a divergence between the two. For instance, consumer spending, in inflation-adjusted terms, grew by over 3% in the first quarter of 2025, yet consumer sentiment on the economy (soft data) was near all-time lows (see chart below).
Investors are tracking the divergence between hard and soft economic data
Consumer sentiment, 3-month average; real PCE, 3-month average YoY, %
Source: Haver Analytics; BEA; University of Michigan, Data as of May 31, 2025
Overall, the data currently signals a resilient U.S. economy in the face of tariffs, consistent with our base case scenario for a slowdown but not a recession. The following three takeaways inform our outlook.
U.S. importers are paying up
The United States collected about $100 billion in tariff revenue in 2024. In May 2025 alone, the tally was almost a quarter of that total (around $24 billion). The current run rate, if sustained, implies an increase of about $200 billion (0.67% of GDP) per year in tariff revenue. Assuming stable imports from 2024, that would amount to a more than threefold increase in the U.S. effective tariff rate.
Tariff collections are on the rise
Treasury deposits, customs and certain excise taxes, $Bn
Source: Haver Analytics; Daily Treasury Statement, Data as of May 31, 2025
Businesses sustain their demand for imported goods
The International Monetary Fund (IMF) tracks satellite data covering 99% of maritime trade to gauge changes in shipping trends. This year through mid-May, U.S. ship import volumes are tracking in line with historical averages (see chart below). The volume of vessels departing China for the United States has climbed 6% year-to-date despite the United States temporarily raising tariffs rates on Chinese goods by 125 percentage points.
That higher volume reflects the frontloading of imports in March and April, which has more than offset the roughly 17% decline month-over-month through May. While economic activity could continue to slow as businesses alter their supply chains, demand for now remains robust.
Import frontloading drove shipping volumes higher in March and April
U.S. ship import volume, 14-day, 10,000 metric tonnes
Source: IMF Portwatch. Data as of May 23, 2025
Tariffs have not yet translated into higher goods prices
On a daily basis, PriceStats uses web scraping to monitor changes in online prices for the United States, providing real-time insights into changes in U.S. inflation trends. Throughout 2025, consumer prices have remained stable. Indeed, they have declined slightly since the start of the year even as corporations have tripled their tariff payments. While we expect consumer prices to rise eventually, the delay has spared the U.S. consumer the full potential impact of the tariffs.
Consumer prices will likely rise—but they haven’t yet
U.S. Inflation Index, % YoY
Source: PriceStats; State Street. Data as of May 30, 2025
Investment implications
As we’ve discussed, resilient data suggests that the tariffs have thus far had a fairly benign impact. At the same time, expectations for a U.S. recession in 2025 have fallen dramatically. PolyMarket betting odds fell from a 65% chance of recession on May 1 to 30% at the start of June.
In our view, less focus on trade policy can help investors consider other key issues that could influence markets (e.g., the prospects for artificial intelligence (AI) and the potential benefits of deregulation). In this way, we think clients can feel more comfortable staying fully invested.
Here’s a snapshot of our current asset class views: In equities, a greater market focus on AI as a non-cyclical driver of earnings supports our positive stance on the tech, financials and utilities sectors. At or around current levels, near- and medium-term rates can continue to allow fixed income to mitigate recession risks. Gold, structures, infrastructure and hedge funds continue to be our preferred tools for smoothing a portfolio’s returns through a volatile market environment. Those tools will be put to good use, we expect, because volatility (like tariffs) won’t disappear anytime soon.
Important Information
Three key data points signal economic resilience—for now. Here’s what you need to know to navigate still volatile markets.
Harry Downie
Global Investment Strategist
Published Jun 11, 2025
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