Despite Trade Policy Uncertainty, U.S. Economy Has Been Resilient

Feeling dizzy? You’re not alone. Last week began with a whirlwind: A 50% US tariff on European Union exports was delayed just days after being announced. A few days later, the Court of International Trade declared many of the Trump-era tariffs invalid, including ones announced on “Liberation Day.” Then hours later, a US Federal Appeals Court paused that ruling from the trade court, putting the impacted tariffs back in place until further legal arguments can be made.

Spare a thought for the researchers at the Yale Budget Lab, who are constantly updating the “US effective tariff rate.” Their estimates have swung wildly — from 28% just after Liberation Day to 6.9% following the trade court’s ruling, and now likely back to the mid-teens after the appeal.¹

Where trade policy goes from here is anyone’s guess. Many of us have likely been brushing up on Sections 122 and 338 of the US Trade Act. Until the standoff between the Trump administration and Congress is resolved, countries may be hesitant to strike new trade deals with the US. The bottom line: Policy uncertainty is here to stay.

This week’s focus: The US amid uncertainty

Despite the noise, US financial markets and the economy have shown remarkable resilience:

• Markets are back to square one – Inflation expectations and real yields have returned to levels seen at the start of the year.² Corporate bond spreads have tightened toward early 2025 levels,³ and the S&P 500 Index has posted a modest gain year-to-date⁴ — reflecting a market that’s been weathering uncertainty without a clear direction, in our view.

• A solid Treasury auction – Concerns about the US funding its growing fiscal deficit may have been overblown. Last week’s 5-year Treasury auction saw near-record demand,⁵ easing fears of rising borrowing costs.

• Consumers are holding steady – While consumer spending softened in April — partly due to a record 20% drop in goods imports from tariffs⁶ — the labor market has remained strong. Disposable personal income rose for the fourth consecutive month.⁷
• Inflation remains contained – Tariffs haven’t yet pushed up prices. The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures index, rose just 0.1% month-over-month in April and 2.5% year-over-year — the smallest annual increase in over four years.⁸

• Positive sign for Big Tech – NVIDIA (NVDA) announced strong first-quarter earnings, underscoring the enduring momentum behind the artificial intelligence theme. While we’re not offering a stock recommendation, it’s a reminder that investment themes can persist — even amid policy distractions.

Looking beyond the US

Our focus on the US this week isn’t to suggest investors ignore global opportunities. On the contrary, we continue to believe non-US dollar assets are more attractively valued and well-positioned in today’s environment. But it’s worth noting that, despite the policy fog, the US economic backdrop has remained relatively sound.

What to watch this week

Footnotes

1. Source: US Department of Trade, Yale Budget Lab, May 30, 2025.
2. Source: Bloomberg L.P., May 30, 2025, based on the yield on the 10-year US Treasury Inflation Protected Security (TIPS) and the 10-year US Treasury Inflation Breakeven, which is the difference between the 10-year US Treasury rate and the 10-Year US TIPS rate.
3. Source: Bloomberg L.P., May 29, 2025, based on the option-adjusted spread of the Bloomberg US Corporate Bond Index, which began the year at 80 basis points and was at 89 basis points at market close on May 29, 2025.
4. Source: Bloomberg L.P., May 29, 2025. The year-to-date price return of the S&P 500 Index at market close on May 29, 2025, was 0.52%.
5. Source: Bloomberg L.P., US Treasury Department, May 2025.
6. Source: US Bureau of Economic Analysis, April 30, 2025.
7. Source: US Bureau of Economic Analysis, April 30, 2025.
8. Source: Bloomberg L.P., May 30, 2025, based on the price-to-earnings ratio of the S&P 500 Index and the MSCI All Country World ex USA Index.

Important disclosures

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All figures in USD unless otherwise stated.

All investing involves risk, including the risk of loss.

Past performance does not guarantee future results.

Investments cannot be made directly in an index.

This does not constitute a recommendation of any investment strategy or product for a particular investor. Investors should consult a financial professional before making any investment decisions.

A basis point is one-hundredth of a percentage point.

The Bloomberg US Corporate Bond Index measures the investment grade, fixed-rate, taxable corporate bond market. It includes US dollar-denominated securities publicly issued by US and non-US industrial, utility, and financial issuers.

The Consumer Price Index (CPI) measures the change in consumer prices and is a commonly cited measure of inflation.

The Europe Producer Price Index measures the average change in price of goods and services sold by manufacturers and producers in the European wholesale market.

Fixed income investments are subject to credit risk of the issuer and the effects of changing interest rates. Interest rate risk refers to the risk that bond prices generally fall as interest rates rise and vice versa. An issuer may be unable to meet interest and/or principal payments, thereby causing its instruments to decrease in value and lowering the issuer’s credit rating.

Inflation is the rate at which the general price level for goods and services is increasing.

The ISM Manufacturing Index is based on Institute of Supply Management surveys of manufacturing firms in the US, monitors employment, production, inventories, new orders, and supplier deliveries.

The Job Openings and Labor Turnover Survey (JOLTS) from the US Bureau of Labor Statistics produces data on job openings, hires, and separations.

The MSCI All Country World ex USA Index is an unmanaged index considered representative of large- and mid-cap stocks across developed and emerging markets, excluding the US. The index is computed using the net return, which withholds applicable taxes for nonresident investors.

Personal consumption expenditures (PCE), or the PCE Index, measures price changes in consumer goods and services. Expenditures included in the index are actual US household expenditures. Core PCE excludes food and energy prices.

The price-to-earnings (P/E) ratio measures a stock’s valuation by dividing its share price by its earnings per share.

Purchasing Managers’ Indexes (PMI) are based on monthly surveys of companies worldwide and gauge business conditions within the manufacturing and services sectors.

Real yields are the returns that a bond investor earns from interest payments after accounting for inflation.

The S&P 500® Index is an unmanaged index considered representative of the US stock market.

Spread represents the difference between two values or asset returns.

The risks of investing in securities of foreign issuers can include fluctuations in foreign currencies, political and economic instability, and foreign taxation issues.

The opinions referenced above are those of the authors as of May 30, 2025. These comments should not be construed as recommendations, but as an illustration of broader themes. Forward-looking statements are not guarantees of future results. They involve risks, uncertainties, and assumptions; there can be no assurance that actual results will not differ materially from expectations.