Trump’s economic roller-coaster is not for the faint of heart

We have now been riding President Trump’s economic roller coaster for more than three months. With wind in our hair and seatbelts fastened, we have yet to arrive at the “golden age” touted by the president as our ultimate destination. Many riders have been feeling queasy.

Some insist that the fun part is still to come. Preliminary announcements of pending trade deals with United Kingdom and China suggest the worst of the trade wars may be behind us. Still, to paraphrase Elvis, we’re “all shook up,” and it’s a good time to take stock.

Grasping where the economy is today involves a lot of moving pieces. There are trade wars, federal government layoffs and Federal Reserve drama, among other things. It also means recognizing the continued ascent of what can be considered a new type of capitalism.

Most crucial for our economic situation are on-again, off-again tariffs imposed worldwide on friend and foe alike. Not coincidentally, the Department of Commerce’s first estimate for 2025 first-quarter real GDP growth showed the economy losing ground for the first time in three years. It registered negative 0.3 percent growth, compared to the previous quarter’s positive 2.4 percent.

Part of the weakness came from a large surge in imports, which subtracted from GDP, as Americans tried to get ahead of pending tariffs. Government employment made for a second economic weak spot after thousands of federal employees were laid off. But all things considered, the weak GDP estimate is, at least for now, bad news for the home team.

Trump’s roller coaster is not recommended for the faint of heart. But other factors confounding an easy analysis are federal agencies vacated, federal funding to major universities cut and the Fed chair’s job security presidentially threatened. Tens of thousands of immigrants have been deported alongside ongoing White House challenges related to due process and habeas corpus.

Taken together, it looks like the rise of a state-directed capitalism where — with national emergency declared and in an avowed effort to remake government and rebalance the world economy — the White House picks winners and losers, coordinates industry activities and manages a trade war that is disrupting markets worldwide and raising serious questions about America’s creditworthiness. Rewarding political friends and retribution targeting White House enemies is potentially another part of the mix.

It’s too early to tell if the government and economy remake will lead to the smaller deficits, less debt, a stronger economy and the more effective federal government that the administration touts. Indeed, we may not have a final reckoning for a year or two. As has been said, “It may all come out in the wash, but it is hell going through the wringer.”

One thing we do know is that history is filled with frustrated efforts to manage complex economies from the top down.

Whether World War II price controls, Civil Aeronautics Board regulation of air transportation, government management of energy markets after the 1970s oil embargoes or the efforts of Soviet Russia to manage an entire economy, there is just no way for central authorities to assemble enough changing information to balance supply and demand.

The parts move, and they move constantly, making the tactic fraught with uncertainty even for those who might generally see themselves as free-market capitalists.

This may be why worrisome reports show April consumer confidence at the lowest level in more than a decade and the University of Michigan’s consumer sentiment index at its lowest non-pandemic level in 44 years. The Federal Reserve Bank of Philadelphia’s index of new orders within the pivotal services economy has fallen to the lowest level since April 2023, and the sector’s employment outlook has turned negative.

On the positive side, there are the apparent trade agreements, employment growth is continuing at a healthy pace and industrial production is positive. Some of the happier data may be distortions due to consumer efforts to buy before tariffs take a toll on prices.

Is there a recession in the works? Many forecasters are trying to side-step the question because it’s too soon to tell. Two quarters of negative GDP growth are in Wells Fargo’s latest 2025 forecast. Other forecasters are showing growth numbers, but by less than one percent.

For now, this roller coaster isn’t stopping. We can only hope that the trajectory will become friendlier.

Bruce Yandle is a distinguished adjunct fellow with the Mercatus Center at George Mason University and dean emeritus of the Clemson University’s College of Business and Behavioral Sciences.