When discussing economic growth, business optimism, and the vitality of financial markets, one term often stands out: ‘animal spirits’. Coined by economist John Maynard Keynes, it represents the emotional and psychological factors that drive business decision-making, consumer spending, and overall economic activity. However, these ‘animal spirits’ thrive on predictability and confidence. Unfortunately, President Donald Trump’s recent flurry of unexpected policy shifts risks stifling these very forces, leaving business leaders, policy analysts, and investors navigating a turbulent and uncertain economic environment.
A Whiplash-Inducing Trade Policy
President Trump’s strategy of “lightning-fast” moves, particularly regarding trade policy, has been marked by sweeping tariff announcements followed by abrupt reversals and temporary exemptions. This unpredictable approach has introduced widespread uncertainty into the business world, making it incredibly challenging for companies to plan ahead.
Key trading partners such as Canada, Mexico, and China have been the primary targets of Trump’s trade agenda, ultimately triggering a highly contentious global trade war. For businesses, this volatility leaves many wondering if, when, and how they will be affected. Gregory Daco, Chief Economist at EY Parthenon, sums it up well, stating, “It’s not just the broad fear of tariffs; it’s the uncertainty that makes it nearly impossible for businesses to plan their investments and strategy.”
The result? Companies are hesitant to make the long-term commitments necessary to foster economic growth, including capital investments and job creation. This hesitation is evident in hiring metrics. Recent surveys indicate a steep decline in private sector hiring, a clear reflection of the economic caution gripping corporate leaders.
Undermining Consumer and Corporate Confidence
For Trump’s administration, rejuvenating America’s economic engine was a primary campaign promise. His policies aimed to stimulate domestic manufacturing, bolster wages, and empower private enterprises. However, what his policies have delivered instead is a growing sense of unease as the business community grapples with elevated uncertainty caused by tariff-related disruptions.
Consumer and corporate optimism, which are crucial for economic vitality, have faded in recent weeks. Wall Street institutions such as JPMorgan Chase and Goldman Sachs have raised their recession forecasts to concerning levels, citing the economic ripple effects of Trump’s policies. Retailers, manufacturers, and service providers are beginning to feel the pinch, with one Federal Reserve survey showing businesses across New York and New Jersey bracing for price increases of up to 4%.
Rebecca Patterson, a senior fellow at the Council on Foreign Relations, highlights the contradiction in Trump’s approach, noting, “The administration wants higher growth because animal spirits are unleashed. But how do you get more animal spirits…if there’s uncertainty around market and economic conditions?”
This decline in confidence undermines the very goal of Trump’s economic playbook and threatens the competitive edge on which his administration has staked its reputation.
The Impact on Small Businesses and Investment
The uncertainty generated by Trump’s policies does not solely impact large corporations; it has tangible consequences for small and medium-sized businesses as well. Tariff-related price increases, coupled with higher inflation, have forced the Federal Reserve to adopt a more cautious stance on interest rates. Borrowing, already a significant hurdle for smaller enterprises, becomes even more expensive in such environments.
Brij Khurana, a fixed-income portfolio manager at Wellington Management, points out that the cost of financing is the largest constraint for small businesses, not a lack of entrepreneurial drive. With restricted access to affordable loans, smaller companies find it difficult to pursue growth opportunities, invest in new technologies, or expand their workforce. These limitations ripple through the economy, reducing overall growth potential.
Limited Policy Wins Amid Economic Disruption
While Trump and his administration have acknowledged that tariffs and other policies would have short-term disruptive effects, their messaging encourages Americans to look at the broader picture of economic reform. As Press Secretary Karoline Leavitt noted, “That requires a little bit of disruption, that requires a lot of effort and work that this president is focused on doing.”
However, evidence of tangible policy wins remains largely elusive. Many signs of an impending economic slowdown are still tied to surveys rather than hard data, such as payroll growth or output figures. While recent reports, such as the February ISM Services Index, suggest pockets of economic resilience, these flashes of optimism are not enough to offset the growing pessimism spreading throughout key industries.
A Self-Imposed Risk to the Economy
The greatest irony of Trump’s economic strategy might be this: the very policies designed to ignite ‘animal spirits’ could suffocate them. With uncertainty growing across every sector—from manufacturing to finance to transportation—even administration officials have dialed back expectations for an economic boom.
Rising inflation could force the Federal Reserve to maintain higher borrowing rates for longer than initially expected, leaving businesses with fewer tools to fund growth. Even the strongest proponents of Trump’s agenda are beginning to feel the weight of its consequences.
What This Means for Business Leaders, Policy Analysts, and Investors
For business leaders, policy analysts, and investors, Trump’s unpredictable policies serve as a stark reminder of the importance of economic stability in igniting growth and optimism. Adapting to this new reality will require robust contingency planning and a more conservative approach to risk management. Investors, in particular, should be cautious when navigating sectors most impacted by tariffs and inflation concerns.
Final Thoughts
President Trump’s agenda aimed at disrupting the status quo has undoubtedly shaken the foundations of global trade and business practices. However, the uncertainty stemming from rapid, unpredictable policy changes has stifled the vital ‘animal spirits’ that fuel economic innovation and growth.
While the U.S. economy continues to face unprecedented challenges, fostering an environment of stable and predictable economic policies could go a long way in restoring corporate confidence and consumer optimism. Until then, businesses and investors must balance ambition with caution as they chart a path through the turbulence.
