The “Trump-Bump” and economic optimism that took hold after the 2024 presidential race appears to have dissipated as Wall Street tip-toes into correction territory and post-election market gains are being wiped out by the hour.
Suddenly, America finds itself in a tariff and trade war with Canada, Mexico, and China. Equities are in free fall, economic red flags are waving wildly, and the Atlanta Fed is now forecasting a 1st quarter contraction.
“The GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2025 is -2.8 percent on March 3, down from -1.5 percent on February 28. After this morning’s releases from the US Census Bureau and the Institute for Supply Management, the nowcast of first-quarter real personal consumption expenditures growth and real private fixed investment growth fell from 1.3 percent and 3.5 percent, respectively, to 0.0 percent and 0.1 percent.” 1https://www.atlantafed.org/cqer/research/gdpnow
An economic contraction is a period of declining business output. It entails a drop in industrial production, job creation, consumer spending, and business investment. According to the St. Louis Fed, a contraction occurs when economic output declines and the economy produces less goods and services than it did before. Fewer resources are also used by businesses — including labor. As a result, falling output equates to falling employment. The real danger of contractions is that they often become recessions.2https://www.stlouisfed.org/education/economic-lowdown-podcast-series/episode-18-the-business-cycle
Is a Recession Imminent?
Several key indicators have been raising alarms about an impending economic slowdown including sinking consumer confidence, a drop in the manufacturing PMI (Purchasing Manager’s Index), a hiring slowdown, an inverted yield curve, along with the fallout of the Trump tariffs and federal job cuts.
“The U.S. economy is not in a recession – yet. But the storm clouds are gathering with consumer spending falling in January, the stock market giving back all of its gains since November and businesses raising prices as President Donald Trump makes good on his threats to impose heavy import tariffs on Canada, Mexico, and China. There’s also the unknown of how firings of federal workers and spending cuts being imposed by Elon Musk’s Department of Government Efficiency, or DOGE, will hurt the economy.”3https://www.usnews.com/news/economy/articles/2025-03-04/5-economic-indicators-to-watch-if-you-are-worried-about-a-recession
The Trump tariffs are sparking retaliation from China, Canada, and Mexico – disrupting trade and creating a new era of uncertainty. According to the White House, the tariffs are necessary because of the extraordinary threat posed by the onslaught of illegal aliens and drugs infiltrating both our southern and northern borders as well as the flow of fentanyl, criminal money laundering, cartels, human traffickers, and transnational crime organizations.4https://www.whitehouse.gov/fact-sheets/2025/02/fact-sheet-president-donald-j-trump-imposes-tariffs-on-imports-from-canada-mexico-and-china
Why the U.S. Economy is Vulnerable
An all-out trade war with America’s top trading partners runs the risk of rattling the global economy, and it comes at a very bad time for the United States. It could trigger further price hikes, more inflation, lower business profits, more pain for U.S. consumers and more volatility on Wall Street.
According to a recent report from NBC News:
“Businesses ranging from automakers to alcohol producers have warned that the added costs for companies to import goods from Canada and Mexico will have wide-ranging implications across the American economy. While some companies will look to source their goods from other countries or move production to the U.S., those moves could take years. In the meantime, companies have said they will have to pay the tariffs and then pick from two options: either pass the added costs along to consumers in the form of higher prices, or absorb the fees and either cut costs elsewhere or take lower profits.”5https://www.nbcnews.com/politics/economics/trump-puts-tariffs-thousands-goods-canada-mexico-risking-higher-prices-rcna194542
According to the Tax Foundation, 25% tariffs on Canada and Mexico would reduce long-run GDP by 0.2 percent, reduce hours worked by 223,000 full-time equivalent jobs, and reduce after-tax incomes by an average of 0.6 percent—before accounting for foreign retaliation. They further estimate that the imposed tariffs on China would reduce long-run GDP by 0.1 percent.6https://taxfoundation.org/research/all/federal/trump-tariffs-trade-war Heavy tariffs, which are essentially an added tax imposed on products entering the United States, risk a wider and more protracted trade war which could dramatically alter trade flows, disrupt supply chains, and reshape global relations.
Why Gold Will Reap the Gains
Fear of a U.S. contraction, recession, or global economic downturn from the trade rift with China, Mexico and Canada has riled financial markets around the world. Wall Street has endured a multi-day selloff along with markets in Europe and Asia. All of this lifts the appeal of safe haven assets like gold.
“Gold rose after last week’s sharp correction, with investors weighing the economic outlook as US President Donald Trump prepares to implement import levies against key trade partners … The latest data on US factory activity adds to growing concern that Trump’s moves will undermine the economy that’s already showing signs of cooling — a scenario which underscores the precious metal’s haven status … Worries over economic growth have boosted market expectations for Federal Reserve interest-rate cuts, which would also add to bullion’s appeal as a non-yielding asset.”7https://www.bloomberg.com/news/articles/2025-03-03/gold-xauusd-gains-after-pullback-as-trump-tariffs-stoke-economic-fears
Investors seeking a store of value, an inflation hedge, and greater portfolio diversification — are flocking to the safety of gold. As the dollar depreciates, economic outlook sours, stagflation risks rise, and central bank purchases soar — gold demand is hitting all-time highs. The world’s favorite safe haven now looks poised to continue the record-breaking run that started early last year, and the case for holding gold as part of a well-protected and well-balanced portfolio could not be more compelling.
1 https://www.atlantafed.org/cqer/research/gdpnow
2 https://www.stlouisfed.org/education/economic-lowdown-podcast-series/episode-18-the-business-cycle
6 https://taxfoundation.org/research/all/federal/trump-tariffs-trade-war
