The Economist: Trump’s tariffs hit like covid - but last longer

Key topicsTrump’s tariff policy mirrors COVID’s market shock and uncertainty.CEOs withdraw forecasts as earnings outlook dims across industries.Trade turmoil may cause long-term damage like Brexit did to the UK..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here.Support South Africa’s bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here.If you prefer WhatsApp for updates, sign up to the BizNews channel here..From The Economist, published under licence. The original article can be found on www.economist.com© 2025 The Economist Newspaper Limited. All rights reserved..The Economist .Peer into a Bloomberg screen and the parallels between the past month and the spring of 2020 draw themselves. Then as now the VIX index, which tracks share-price volatility, spiked above 40, a level reached only a handful of periods in American stockmarket history. Uncannily, both in 2020 and 2025 the S&P 500 index of America’s biggest companies peaked on the same day, February 19th, before declining and then collapsing by more than 10% in a matter of days. The oil price plunged. Sentiment among American consumers was and is down the tubes.Five years ago the cause of the commotion was covid-19, which infected vast numbers of people and put the world economy in intensive care. Today it is another force of nature, Donald Trump. Unlike the virus, the president’s trade policy is non-lethal to humans. But it might be to American firms, especially those which rely on China. The world’s two biggest economies have quarantined each other off with tariffs in excess of 100% on most goods.Worse, companies contend with pandemic-like uncertainty as tariffs are raised and lowered, imposed and removed—all in ways no less stochastic than the evolution of covid variants. On May 4th Mr Trump suggested that he would charge levies on films made abroad. The next day the share prices of Netflix and Disney slid, before rebounding when the White House reversed its script. The tariff shock is “covid plus plus”, sums up a Wall Street banker.No wonder bosses are tempted to view it as akin to the pandemic. If only. In fact, the consequences for American big business of Mr Trump’s trade-warmongering are likely to be far more profound—and enduring.In 2020 and now the tumult hit just as CEOs were preparing to report first-quarter results. Those were and are mostly healthy, in stark contrast to updated forecasts for revenues and profits. As in the pandemic’s early weeks, analysts are revising down their projections for the sales, capital expenditures and profits of many S&P 500 companies. Since January the consensus for the index’s combined earnings per share in the second, third and fourth quarter of this year have declined by 5%, 4% and 2%, respectively.More worrying still, many bosses are once again pulling guidance altogether. On April 29th UPS, a parcel-delivery giant, withdrew its full-year forecasts, just as it had five years earlier almost to the day. So have carmakers (Ford, General Motors) and airlines (American, Delta, Southwest). On May 5th Mattel paused its annual forecast for toy sales, days after Mr Trump mused that no American girl needs more than two Barbies, really..Read more:.Amazon warns of slower growth as tariffs and trade fears loom.Only 17% of big businesses have opted to give investors a sense of what profits to expect in the second quarter, compared with 20% or so typically. That is the lowest share since, you guessed it, 2020. It does not include cop-outs like AbbVie, a drugmaker, and 3M, a glues-to-gaskets conglomerate, which noted that its guidance does not reflect the impact from tariffs. One in four S&P 500 companies has brought up “recession” in its latest earnings calls, reckons Goldman Sachs (the bank being among them). This is not a world away from one in three that first pandemic spring. The previous quarter’s figure was one in 50.Bankers and advisers report that businesses worried about supply-chain disruption are beginning to stockpile products, increase working capital and defer payments to suppliers. Executives echo pandemic-era watchwords like “resilience”. Some companies are talking up investments in domestic supply chains. On April 30th Pratt Industries, a privately held packaging giant, answered Mr Trump’s call to reindustrialise America by pledging to spend $5bn in the country. A day later Kimberly-Clark announced it would spend $2bn over five years to avert any future shortages of Kleenex tissues and Huggies nappies.For all this hand-wringing, deep down many American bosses cling to the hope that the tariff turmoil will also end just as the covid chaos did—which is to say, with a swift return to business as usual, barring a few more empty desks. The second quarter of 2020 was painful, to be sure. More than 300 companies in the S&P 500 reported a year-on-year fall in sales; over 100 suffered a net loss. Some 260 collectively booked nearly $90bn in one-off charges such as asset write-downs.By the autumn of 2020 CEOs still preached the virtues of resilience. But they were privately conceding that those maligned “just-in-time” supply chains held up fine, all things considered. Just as well, for reconfiguring them would cost billions. Demand for many things ballooned as Uncle Sam posted covid cheques to citizens. In the second quarter of 2021 some three-quarters of firms in the S&P 500 saw their profits rise year on year. The typical bottom line swelled by 44%. By late summer 2020 the index had recouped all its losses. It then went on an epic tear..No-plan-demicInvestors have concluded that America Inc is reliving the covid shock on fast-forward. Within a month of Mr Trump’s surprise announcement of “reciprocal” tariffs on most countries, the index was back where it had been beforehand. A 90-day pause on those levies and news of upcoming trade talks between America and China have calmed equity markets.Yet business is not back to usual. Even if the tariffs stay paused and prohibitive ones on China come down, trade barriers and uncertainty will remain. Those risk being to America Inc what Brexit was to UK plc—a persistent drag on growth. In a new working paper Nicholas Bloom of Stanford University and colleagues find that by 2024 Britain’s exit from the EU had cut productivity by 3%, business investment by 12-20% and GDP by 6-9%. American CEOs should put away their pandemic diaries and chat to their British counterparts instead. They won’t like what they hear.

The Economist: Trump’s tariffs hit like covid - but last longer

Key topics

From The Economist, published under licence. The original article can be found on www.economist.com

© 2025 The Economist Newspaper Limited. All rights reserved.

The Economist

Related Stories