The US economy is beginning to show signs of tension as President Trump's sudden moves cut federal spending, fire government workers, impose tariffs on America's biggest trading partners, and echoes across states and cities.
Recent economic research shows that federal workers' shootings combined with the prospects of a costly trade war and the prospects of a costly trade war.
The local economy has also become brave due to the sudden withdrawal of financial support, and authorities are forcing them to reflect on tax increases or municipal bond provisions to stabilize the budget. Trump acknowledges that his policies could bring about initial pain, but early warning signs suggest that his dull approach could involve more ominous risks to the economy.
“We're a conservative American Enterprise Institute economist Michael Strain said: “I think all the uncertainties regarding trade policy, some of the things government efficiency is doing, will have a calm impact on investment and expansion plans.”
Trump took office last month during stable economic growth and inflation easing. The US economy continues to be the most powerful in the world.
But the economist warns that his plan to enact sweeping fees could raise prices and cause a trade war that would hamper growth. There are early signs that those concerns are effective.
The move to halt the president's foreign aid and freeze some federal funds has already hit domestic farmers who export billions of dollars of products as part of the US foreign aid program. Some of the orders to halt Trump's fundraising have been suspended by courts, but they are still disrupting early growth programs such as Head Start. Billions of dollars in climate and infrastructure investments currently in scope during the Biden administration.
The historically strong labor market, with a national unemployment rate of 4%, is also at risk. The so-called government efficiency office led by Elon Musk has begun cutting jobs in thousands across the federal government. Labor cuts are just beginning to scrutinise how cost-cutting initiatives align with Trump's agenda.
The shootings have echoed across Washington, urging protests at city hall meetings and a backlash from Republican lawmakers who have voiced warnings about their state's economic fallout.
“Dozens of Alaskans (potentially more than 100 total) have been fired as part of the Alaska administration's federal expansion order,” wrote Sen. Lisa Markowski, a Republican from Alaska, who wrote, “Many of these sudden terminations are more reasonable than creating opportunities in Alaska and opening holes in our community.”
Institutions that rely on federal funding from agencies such as the National Institutes of Health and the National Science Foundation are preparing to cut back in the face of frozen payments and other potential policy changes.
Stanford University said Thursday it is implementing a hiring freeze across the university. It said it intends to cut payments funding the research and that it could soon raise the university's contribution tax.
In Pennsylvania, Gov. Josh Shapiro sued the Trump administration, which has more than $2.1 billion in federal funds placed during freezes or reviews. Money dedicated to programs that ensure the safety and plug of the mines was restored this week, but the freeze created uncertainty for the state.
“The federal government has signed agreements with state agencies to deliver those dollars to people's communities,” Shapiro said this week. “These contracts are binding. Simply put, trading is a transaction.”
Emily S. Brock, director of the Federal Liaison Center for the Government Finance Officers' Association, said local officials were in a hurry to decide which projects could be stopped due to the federal funding freeze. Local governments are concerned that sudden losses in federal money could violate the contract if services have to be stopped suddenly.
To compensate for the withdrawal of federal financial support, Brock said local governments are beginning to issue more bonds and look for other ways to raise revenue. She noted that when the Biden administration sent $350 billion in relief funds to states and cities, it was a sharp turnaround from post-pandemic times.
“When you go from $350 billion to nothing, that's a pretty impressive difference,” Brock said. “I think states and local governments need to think creatively about a lot of different things.”
Economists and analysts are also growing concern about the economic sacrifice.
Investment company Apollo Global Management estimates that employment cuts related to government efficiency could rise to 300,000, with government contractors inclusive, with the total number of layoffs close to 1 million. This is a small share of 160 million workers, but could still affect the job market and other parts of the economy.
“A rise in layoffs will raise unemployment claims over the coming weeks, and such a rise in unemployment is likely to affect interest rates, stocks and credit,” Apollo chief economist Torsten Slok wrote in a new report on strengthening the risk of intensification into the economy.
Economic indicators show signs that many of the anxiety that focuses on Trump's tariffs are increasingly stressful. This month he imposed a 10% tariff on Chinese imports and nearly a 25% tariff on goods from Canada and Mexico before offering a month's reprieve. On Thursday, Trump said tariffs on Canada and Mexico will come into effect on March 4th, and would impose an additional 10% tariff on China. The Trump administration is also preparing to not only collect cars, semiconductors, steel and aluminum, but also impose high “mutual” tariffs on imports.
A consumer sentiment survey issued by the Conference Committee on Tuesday recorded its biggest monthly decline in February since 2021. The decline was attributed to an increase in pessimism about employment outlook and future business conditions, and concerns about trade and tariffs reached the level last seen in the 2019 trade war in Trump's first term.
S&P Global's business activity scale, published last week, showed slower business expansion in the US in February as a result of “uncertainty and instability surrounding new government policies,” including reduced federal spending and tariff-related developments.
The housing market is also under pressure. The National Housing Builders Association said in its latest report that builders' trust has dropped to five-month lows due to concerns about tariffs, rising mortgage fees and high housing costs.
At Cabinet meeting Wednesday, Trump rejected the proposal that his policies were creating economic unrest.
“Looking at the confidence in the country, chart history has shown the biggest increase,” he said, rising with confidence after winning the election, without specifying the chart he is referring to.
Morgan Stanley Economists estimates tariffs are measured at 0.6 percent points, as measured by the Personal Consumption Expense Index, and will curb actual consumer spending up to two points. The overall hit to inflation-adjusted economic growth could reach 1.1 percent points.
In the case of the Federal Reserve, concerns about the outlook for inflation appear to outweigh those related to economic growth, minutes from the central bank's latest meeting showed. It suggests that businesses and consumers who want some relief in terms of low borrowing costs may be waiting for some time. So far, the Fed has suggested that further interest rate cuts are pending in the near future.
Trump's top economic adviser argues that the economic impact from tariffs is offset by the scope of other policies the president is pursuing. This includes increasing domestic energy production, reducing taxes, government spending and reducing regulatory deficits.
In an interview with Fox News Sunday, Treasury Secretary Scott Bescent defended the Trump administration's actions to reduce the size of the federal government, claiming that the private sector was intended to stop the private sector from becoming crowded with federal spending.
“We've seen what this organised government spending is what we call past administrations,” Becent said. “And we're going to take it down.”
But even some of Trump's most enthusiastic supporters have seen the economy with some fear. After the stock market plunged last Friday, Fox's business host Larry Kudlow, director of the National Economic Council during Trump's first term, said investors were not satisfied with the tax cuts appearing to be behind in Congress and admitted that tariffs could temporarily lead to higher prices.
“For now, at least for now, economic signals are growing slower and inflation is rising,” Kudlow said. “not good.”
Colby Smith Contributed with a report from New York.
