Not So Fast On Tariff Rollback Euphoria

My wife and I recently decided to have our window seat cushions recovered. We went to the local fabric store, a privately-owned, non-chain operation that had a reputation for good work. As we were perusing the various fabrics, we noticed that many of the rolls were smaller than we expected and it turned out they did not have sufficient material for our first choice.

The saleswoman explained that stock was low because the tariffs had fouled up the supply chain and they could not get material they had ordered weeks earlier. In addition, everything was on sale because business had slowed due to the shortage and they needed to move everything they could until their new shipments arrived.

We settled on another fabric and placed the order. We were surprised at the labor cost, which seemed quite high for two rectangular cushions, but the woman said that her costs had gone way up.

When we returned to pick up the cushions, which were done quite well, the woman greeted us at the door and said, “Do you need any accessories? We have a lot of accessories.” We replied we did not and she sighed, “That’s too bad. We had to order a whole bunch of them when the tariffs were announced and they all came in at once.”

In other words, they had overstocked their inventory and were now stuck with it, a potentially disastrous position for a small retailer to be in. The media is rife with stories about small businesses across America, most family-owned, that have been forced into similar predicaments. Some could not get supplies and were forced to lay off workers for lack of sales; others had to pay exorbitant amounts for inventory and had to choose whether to try to pass the increases on to customers and risk losing them or operate at a loss in the hopes that the economic environment would improve and the red ink could be stanched.

Now, with the announcement that the most severe tariffs with China had been paused, the financial markets are celebrating, skyrocketing on the news.

But is the news really that good? There are two considerations that seemed to have been lost in the maelstrom. The first is the situation for small businesses. Their dilemma will not change. Do they order more than they need during this ninety-day pause and risk carrying inventory they cannot sell or hold off in the hopes that the rollback is permanent? These problems exist for larger corporations, of course, including huge multinationals, but smaller businesses have far less of a cushion or the ability to ameliorate the impact of uncertainty through fancy financial footwork or creative accounting. For the sort of operation that is considered the backbone of America—and whose owners were among Donald Trump’s most fervent supporters—guessing wrong has life or death consequences.

In addition, because the global economy is so integrated, trade disruptions can pop up in unexpected places. It is not just finished goods that are affected, but components as well. For example, barrels in which American wine is stored are often made from oak imported from France or Hungary because they yield a superior product. Many other American-made goods are dependent on foreign components that may not be as obvious as auto parts but will impact pricing and availability nonetheless.

But perhaps the even larger issue, once one gets past the smoke, is has the economy improved overall since Trump took office? He was elected on his promise to lower prices, boost American manufacturing, improve the employment outlook, and initiate a new “Golden Age.” All that has happened so far is the implementation of a number of knee-jerk executive orders that threatened to crash the markets followed by a pullback that, at best, got us back to where we started. All this was done while creating the sort of market volatility in which businesses large and small are hesitant to make long or even medium-term commitments.

In other words, for all the chaos, we have been running in place while our former trading partners give lip service to negotiations and cut side deals with counterparts they consider more reliable. This does not mean the United States will instantly fall off the world trade map. Our consumer base is too broad and our purchasing power too strong for that. But it can mean that our position of dominance will erode and perhaps do so at a rate that would have been considered unthinkable just six months ago.

As I have been writing, short-term market fluctuations are an unreliable indicator of either the actual state of the economy or its future prospects. Wall Street is dominated by rapid-fire trading that allows positions to be unwound and profits to be taken before the markets careen off the cliff. But they will react, and fast, when and if negative news begins to set in. For example, we are only months before the Christmas buying season begins, and it is a great unknown. Will consumers ignore the ominous forecasts and spend money regardless—go buy those thirty dolls—or will they spend less and keep more in reserve out of fear of the unknown?

If the former, the bubble might extend into 2026; if the latter, the downturn will either begin or be exacerbated, which in turn will fuel a steeper decline. When such slides have happened in the past, American leadership, both Democrat and Republican, responded quickly and forcefully—even Richard Nixon implemented wage and price controls.

But Donald Trump is a different animal. He cares more for his image than for the country he has taken an oath to serve. He will only alter course if he can declare victory in doing so, as he has done with the China, although it is unclear what the United States has gained, if anything, by what is in essence a partial ceasefire in place.