Economic Crossroads: Navigating Tariffs, Trade Wars & Disruption

The American economy stands at a critical juncture in 2025, facing policy shifts, trade uncertainties, and technological disruption that will reshape supply chains for years to come. As Dr. Robert Eyler, President of Economic at Sonoma State University, recently explained to industry leaders at our Catalyze conference, understanding these macroeconomic forces has become essential for navigating the current landscape.

Labor Market Resilience as Economic Foundation

Despite widespread concerns, the U.S. labor market demonstrates remarkable strength. Dr. Eyler highlighted: "We're about 5% above where we were in January, 2020, seasonally adjusted on a monthly basis as of March, 2025." This contrasts sharply with the Great Recession recovery, where "it took 78 months to get back to the same number of people working in the United States."

This employment strength serves as a crucial buffer against recession. As Dr. Eyler emphasized, "Unless that black line starts to curl back toward that red line in earnest, we will not have a second declared recession in the United States. We need the labor market to fade to actually have that happen and the Trump administration, regardless of the rhetoric, they know that."

Inflation's Stubborn Persistence

Core PCE inflation remains elevated at 2.8% year-over-year as of February 2025. After declining through most of 2023 and 2024, inflation has plateaued in what Dr. Eyler described as a concerning "flat period... which suggests that the warm labor market is going to push price pressures up because if people continue to get jobs, continue to get raises, they're going to continue to consume."

This has prompted Federal Reserve caution on rate cuts. Dr. Eyler noted: "The Federal Reserve is being very careful about reducing interest rates even though the Trump White House would love that because it preserves jobs in their mind, which is the number one way we're going to go into a declared recession if those jobs numbers start to turn."

The Tariff Uncertainty Challenge

Current tariff policies create unprecedented business uncertainty. Dr. Eyler was frank: "For macro economists, there's a lot of mystery about... the length of time we're going to see tariffs in their current form, the volume that will stick around and what countries will be most affected."

He emphasized tariffs' fundamental nature: "Tariffs are indirect sales taxes. The consumer will pay that price at some point." Manufacturing costs are already rising, with Dr. Eyler explaining: "Tariffs will exacerbate and cause prices to rise throughout supply chains."

From an economic policy perspective, Dr. Eyler criticized the approach: "From a macroeconomic standpoint, if you look at the history of macroeconomics, the worst way to run an economy is to play pinball with the economy in terms of just hitting the flapper and hoping I know where the ball's going to go."

Trade and Manufacturing Reality Check

Trade patterns show dramatic volatility, with Dr. Eyler observing: "In February, when tariffs started to show their face, we saw a real change in the nature of how we were buying imports. We were trying to buy them as fast as possible before things went sideways."

Retaliatory measures compound the problem: "Canadian liquor stores and their government run to pull American products off the shelf and then say buy Canadian instead... This is not good for the American economy when this happens."

While acknowledging potential manufacturing opportunities, Dr. Eyler tempered expectations about grand manufacturing revival promises: "The economics around that happening while all of us in this room are alive are very low." He was particularly skeptical about coastal manufacturing: "The idea that California is going to be this manufacturing super hub is zero chance in the medium term."

Financial Market Uncertainty

Equity markets reflect prevailing uncertainty despite substantial pandemic-era gains. Dr. Eyler provided his perspective: "The equity market, specifically the  S&P 500 between December, 2019 and December, 2024 increased almost 85%... So we give back about 10 or 11% and everybody loses their minds."

Interest rate markets show stress through yield curve inversion, with Dr. Eyler explaining: "When that blue line goes below zero, a recession is normally coming."

The Forecasting Dilemma

Economic forecasters show unprecedented divergence. Dr. Eyler highlighted: "The New York Fed and the Atlanta Fed both have high frequency forecasting models... They were predicting completely opposite outcomes for the first quarter of 2025. One was saying we'd grow about 2.6%. The other one was saying we would grow by negative 2.8% and the actual first outcome was 0.3% negative."

This reflects "a lot of confusion in forecasting models" that will likely continue.

Strategic Outlook

Dr. Eyler identified two potential policy "end games": genuine manufacturing repatriation benefiting red states, or "creating so much uncertainty that a collective of about 25 or 30 individuals will be able to profit wildly off of equity market movements."

For timing, he suggested: "A lot of forecasts are saying it's going to be a short recession and it's going to happen in quarter three or quarter four this year because once the recession hits, that'll force the hand of getting more deals done."

The key distinction remains structural versus cyclical change: "If it's cyclical and very short cycle, this is something that says, okay, we're just going to take the punch in the face and then we're going to recover."

Navigating the Path Ahead

Dr. Eyler's analysis reveals an economy where traditional relationships are complicated by policy uncertainty. As he concluded: "The outcomes are going to be mixed for at least the next two quarters... Right now, it's more of a mixed bag in terms of where we see policy going. Hopefully logic will prevail."

Success requires adaptability, careful risk management, and clear-eyed assessment of both opportunities and threats. The coming months will determine whether uncertainties resolve into stable frameworks or evolve into serious economic disruption. As Dr. Eyler's analysis demonstrates, the cost of missteps in this economic environment could be long-lasting.