It’s a widely accepted notion among business professionals that uncertainty spells trouble. Now, more than ever, the U.S. economy is about to undergo a significant test of this belief.
The early days of the second Trump administration have been a whirlwind of unpredictable economic policy decisions. Initial steps to freeze spending were swiftly reversed. Some federal programs and even whole agencies faced temporary suspension or closure. Tariff policies have been a roller-coaster, threatened one moment, announced the next, only to be canceled, delayed, or enacted soon after. Economic policy uncertainty has surged, reaching levels typically seen during recessions or global crises.
This unpredictability has left business executives, who initially welcomed President Trump’s electoral victory hoping for tax cuts and deregulation, feeling bewildered.
“I have no idea what’s happening in Washington anymore,” expressed Nicholas Pinchuk, chief executive of automotive toolmaker Snap-on.
Ford Motor’s CEO, Jim Farley, echoed these sentiments during a conference in New York, stating, “All we’re seeing so far is chaos and mounting costs.”
“It’s mind-boggling. You just never know what’s coming next,” added Chad Coulter, the head of Biscuit Belly, a breakfast restaurant chain in Louisville, Kentucky.
However grim the outlook appears, these CEOs remain committed to their planned investments, still harboring optimism about their futures. This optimism is shared by many in their ranks. Business confidence soared post-election, and though there’s a hint of waning enthusiasm, business leaders remain generally positive.
A report from the National Federation of Independent Business (NFIB) indicated a slight decline in small-business sentiment in January, yet the numbers remain stronger than during the prior administration.
“You’ve got a mix of increased optimism and higher uncertainty, which are conflicting forces,” remarked Nicholas Bloom, a professor at Stanford who researches the economic impacts of uncertainty.
Even those generally supportive of the administration warn that continued chaos could dampen this business confidence, particularly if Republicans struggle to push through their legislative goals.
For NFIB members, preserving a vital small-business tax break set to expire is crucial, as Jeff Brabant, the NFIB’s federal government relations head, explains. “We’re in February, and folks are optimistic, giving the new regime a chance,” he noted. “But if there’s no deal by fall, anxiety will likely rise.”
The rising tide of uncertainty has spurred economists to rigorously study its effects by devising metrics to track it over time and across borders. Their findings suggest that uncertainty can stifle hiring and investment activities and result in reduced sales, beyond the direct impact of the policies themselves.
“Uncertainty can be detrimental to business operations,” said Steven J. Davis, an economist at Stanford. While businesses can adapt to unfavorable rule changes, uncertainty about future regulations can leave them in a state of hesitation.
Kim Vaccarella of Bogg Bag knows this struggle all too well. Her company, known for vibrant totes manufactured in China, faces the uncertainty of new tariffs potentially raising wholesale costs by $2.50 per bag—a notable hike for items retailing between $55 and $100. Contemplating a production shift to Sri Lanka or Vietnam, she finds it tough to make decisive moves given the rapidly shifting trade policies.
“We’re in a tricky spot. How do we move forward?” she pondered.
Post-election, economic policy uncertainty has soared, according to an index by Davis, Bloom, and Northwestern University’s Scott Baker. Unlike past peaks linked to global events or crises, this rise seems unusually deliberate, according to Bloom.
Predicting business responses is complex. Some businesses might remain hopeful, betting on reduced uncertainty and focusing on possible advantages of a Trump administration. Financial market volatility remains minimal despite the ongoing commotion in Washington.
Nonetheless, executives might hesitate on long-term investments—like factory relocations or lengthy R&D projects—due to potential reversibility concerns, Bloom suggested.
Snap-on’s Pinchuk already observes caution among clients, such as auto shops and mechanics, who are shying away from expensive, long-payoff items in favor of cheaper, quickly-paid alternatives.
“They don’t want to commit to three- or four-year payment plans,” Pinchuk noted. “They’d rather invest in something that they can repay in 15 weeks, and revisit it if circumstances remain favorable.”
In response to this climate, Snap-on has pivoted to offering more affordable products and taken proactive measures like pre-positioning materials to preempt tariffs.
“You have to prepare so you’re not caught off-guard,” Pinchuk explained.
Others are making similar moves. A surge in imports at year-end showed companies racing to pre-empt tariff impacts.
To economists, such maneuvers highlight uncertainty’s costs: businesses make atypical decisions, like premature inventory purchases or schedule changes, all in anticipation of potential policy shifts. Uncertainty acts like a tax, distorting decisions and hindering overall economic efficiency.
It may take time before these costs become fully apparent. Slower hiring and investment should surface in economic data, but distinguishing their effects from normal fluctuations or other global issues might prove challenging.
The U.S. economy’s current strength may provide a buffer. Strong sales and economic stability may sustain business hiring and investment for now, suggested Gregory Brown, a finance professor at UNC.
“Policy uncertainty could slow down some investments, but likely won’t grind them to a halt,” Brown asserted.
However, a consumer retrenchment in response to uncertainty could have more severe consequences. Post-election, consumer sentiment, especially among Republicans, peaked but is now dipping. Surveys show fears that tariffs will drive up prices.
Coulter of Biscuit Belly worries not just about specific federal policies—like immigration crackdowns affecting labor availability, tariffs inflating construction costs, or the avian flu’s impact on egg prices—but also about the broader climate of uncertainty potentially keeping customers away.
“In uncertain times, people tend to conserve, holding onto their money because they don’t know what tomorrow holds,” Coulter explained. “There’s just a lot of confusion. Nobody really knows what’s coming next.”
Contributions to reporting by Jordyn Holman and Jack Ewing.
