Welcome To The ‘Uncertainty’ Economy

President Donald Trump’s on-again, off-again trade war threats have put businesses and consumers on uneasy footing about the future, and the uncertainty itself could hurt the economy.

President Donald Trump sparked chaos in financial markets this week, imposing heavy tariffs against Canada, Mexico, and China on Tuesday and doubling down on threats to impose even more tariffs against other countries on April 2. The next day, Commerce Secretary Howard Lutnick said the import taxes on certain sectors could be eased, leaving decision-makers to guess what American trade policies will be in the weeks and months to come.

Amid the policy whiplash, the word “uncertainty” has cropped up everywhere—in earnings calls, economic commentaries, and surveys of business and consumer sentiment. Economists have warned of potential negative effects of the tariffs, including pushing up the cost of living and slowing the economy. However, regardless of their actual impact, uncertainty itself could have a cost.

‘Uncertainty’ Abounds

Business leaders and consumers can never, of course, be entirely certain of the future. But when leaders are unsure what the rules will be in the near future, they can delay hiring and investment decisions.

Several economic papers have shown that uncertainty is associated with lower investment, less employment, and more volatility in financial markets. The uncertainty has already dented measures of consumer confidence, raising fears that an economic slump is brewing.

The Beige Book is the Federal Reserve’s report on the state of the economy based on feedback from business and civic leaders around the country. The word “uncertain” appeared 47 times in the latest edition, released Wednesday, compared to 17 times in the previous report, released in January.

“BofA Economists believe Trumponomics 2.0 has introduced significant uncertainty to the economic landscape, driven by tariff threats, shifting trade negotiations, immigration policies, record fiscal deficits, and geopolitical developments like the Russia-Ukraine peace talks,” economists at Bank of America wrote in a commentary.

Another example: the word “uncertainty” appeared five times in the Institute for Supply Management’s survey of the services industry for February.

“Business seemed to pop after the election, but uncertainty after the election seemed to take the ‘wind out of our sales,’ with uncertainty again increasing,” a manager in the professional, scientific and technical services sector told ISM.

The survey showed the service sector expanding at a healthy rate, but the talk of uncertainty raised some red flags among economists.

“Worries about the economy aren’t misplaced because uncertainty, which spiked, can be suffocating for business investment in equipment structures and could undermine hiring,” Ryan Sweet, chief U.S. economist at Oxford Economics, said in a commentary. “Consumers are not immune to uncertainty, as it can lead them to move to the sidelines.”