Tariffs Are Hitting The U.S. Economy Where It Hurts

President Donald Trump’s tariffs are already shifting how people spend their money, in an ominous sign for the future of the economy.

Evidence is mounting that consumers are tightening their belts as they brace for tariffs to push up prices on all kinds of imports. In February, U.S. households cut back their spending on services while ramping up purchases of goods, which is a possible sign that people are rushing to buy things before tariffs hit, according to a report on spending and inflation from the Bureau of Economic Analysis on Friday.

In a separate survey by the University of Michigan Friday, expectations of future inflation rose to their highest since 2022, and expectations for unemployment rose to their highest since the Great Recession, flashing a warning sign that households might be preparing to cut back on shopping.

The latest data highlights the seismic impact that Trump’s continually shifting tariff policies have had on the economy in recent weeks. Economists have become more concerned that consumers, facing price increases on many products, will cut back on spending, undercutting an important pillar of the economy’s health: consumer spending is the main engine of economic growth, making up 68% of the Gross Domestic Product.

Consumers Could Stop Buying…

Households plan to cut back their spending significantly on both essentials and discretionary items if there is tariff-driven inflation, according to a survey this week by Morning Consult, a research firm.

Among households with income of less than $50,000, 35% plan to cut back on groceries, and 19% making more than $100,000 said the same. More than 20% of all income groups in the survey said they would cut back on dining out and clothing.

“U.S. consumers are increasingly inflation-weary, their finances are more fragile, and they face higher risks in the labor market,” Deni Koenhemsi, head of economic analysis at Morning Consult, wrote in a commentary. “These dynamics place U.S. consumer spending on a different trajectory compared to the previous shock—the pandemic—or the last time President Trump introduced tariffs.”

Behind the trend are expectations that Trump’s import taxes will push up the cost of living. Not only are merchants likely to pass on the cost of tariffs to consumers, but decreased competition from imports will allow U.S.-based companies to raise their own prices, multiple economists have predicted.

…And Are Worried About Their Jobs

At the same time, fears of a slowdown in the job market are growing.

While the unemployment rate has stayed near record lows in recent months, employers have cut back on hiring, and a tariff-driven slowdown of the economy could drag down job growth even further. Most economists predict the job market to stay on steady footing, at least in the short term, but consumers aren’t so sure: two-thirds of people surveyed by Michigan this month anticipated unemployment to rise in the year ahead, the highest percentage since 2009.

“This trend reveals a key vulnerability for consumers, given that strong labor markets and incomes have been the primary source of strength supporting consumer spending in recent years,” Joanne Hsu, Surveys of Consumers director at the University of Michigan, wrote in a commentary.

Those Concerns Are Bad For the Economy

In recent years, consumer spending has kept the economy afloat despite powerful forces dragging it down.

The economy has avoided a recession despite high inflation in 2022, and after that, high borrowing costs imposed by the Federal Reserve in an effort to push inflation down to pre-pandemic levels. But the tariffs could be the last straw for household finances already strained by steep cost-of-living increases. The U.S. economy is on track to shrink 2.8% in the first quarter of 2025, according to the Federal Reserve Bank of Atlanta’s GDP Now tool.

“So far, consumers are not coming to rescue economic growth as they have so many times in recent years,” Tim Quinlan and Shannon Grein, economists at Wells Fargo Securities, wrote in a commentary.