Donald Trump said he felt a “new spirit” to course the US corporate world to unleash hundreds of millions of dollars in investments in a room full of executives on Tuesday. “Taxes” added that it “has had a very positive effect” at the business roundtable meeting.
As he said, the stock market offered a very different verdict. The S&P 500 Index closed 0.8% that day and continued to fall the next day before it rebounded on Friday. The index has lost 4% since its launch in 2025.
The White House’s wary and unpredictable twists in trade policies have shaken up confidence with fear that the shaking of federal government machinery will grow.
This is far from the fact that Trump’s belief that the corporate animal spirit would be unleashed by deregulation, tax cuts and hackback bureaucracy was widely shared by many US executives earlier this year.
A conference at the World Economic Forum in Davos, Switzerland, in January became a hot topic for talk of American domination over curative Europe and stagnant China. “It’s five minutes until midnight in Europe,” said one of the top bank executives at the time, adding “Everyone is an American all-in.”
That eerie mood was crudely crushed by Trump’s first inauguration. The bewildering volatility of the president’s policy making – tariffs have been threatened, withdrawn, ratchet era and dialed again, increasing corporate uncertainty, weakening emotions and spurring warnings of a recession.
“In Davos, all Glib Bankers were saying Party Time. Go here and there, deregulation, low tax, M&A boom, IPO boom,” says the CEO of a global investor with $200 million operating assets. “This completely backfired on their faces.”
The predicted slowdown is not the result of external shocks such as surges in energy prices, wars, pandemics, and bank breakthroughs, but rather self-injury scars driven primarily by the administration’s own policies.
While Trump made abundantly clear during his campaign that he wanted to double the trade war for his first term, his policies proved to be far more broadly offensive than most analysts expected.
Trump’s decision to swing has become a terrible wrong investor as he punished tariffs in the first two months and hit three of America’s three most important trading partners – Canada, Mexico and China.
The first Trump administration taxed approximately $380 billion in imports in 2018 and 2019. The new tariffs will affect imports worth $1 billion.
Companies say there is a clear shortfall in what tariffs are intended to achieve – is it higher federal revenue, or is it a reuse of production to the US, or is it a specific purpose, such as reducing drug trafficking or illegal migration? This made it even more difficult for them to develop plans.
This increases business uncertainty, delays investment decisions, and undermines growth. Inter-business policy uncertainty index edited by nfibnonprofits representing small and medium-sized businesses have now approached record highs since the early 1970s.
US companies relying on importing intermediate goods will face higher costs, but American households can notice that they have budgets in place. US exporters are hit even further as they have been hit by retaliatory tariffs from US trading partners such as Canada, the EU and China.
“Everyone started out bullish, but given his policymaking that is at best unstable, people say this is probably not Trump 1.0,” says Davide Serra, founder and CEO of Algebraic Investment, an investment company. “To me there’s nothing exceptional about the US. It looks like a circus.”
In addition to the harsh effects of trade policy, there was a disruption that led to Elon Musk and his envoys at the so-called Office of Government Efficiency (DOGE) primarily sided with the suspension or firing of tens of thousands of workers and cancelling thousands of government grants and contracts.
Musk’s actions have caused rifts within the Republican Party and have created widespread uncertainty in the federal workforce and population section. On Thursday, two federal judges ordered the Trump administration to fire tens of thousands of government officials in recent weeks in a legal setback to mask cost-cutting drive.
Investors are beginning to worry about the dangers of a US recession, but Wall Street forecasters are still not ready to give up on ghosts. The latest survey of predictors by consensus economics points to a 2% growth this year. This is down from the 2.2% forecast a month ago and the 2.7% forecast of the IMF issued in January.
This is still well above the 1% growth forecast by the Eurozone IMF. The Federal Reserve Bank of Atlanta’s GDP tracker refers to a first quarter contraction, which is heavily skewed by trade data affected by large gold imports.
Treasury Secretary Scott Bescent played down market volatility and argued that slower growth was a necessary part of the “detox era” in which the country’s economy is less dependent on public spending.
Some investors are willing to give the administration the benefits of doubt. “This will be better for the long term US,” said Joseph Amato, president and chief investment officer of Equity for New York-based asset manager Neuberger Berman. “I don’t think 25% of the GDP flowing through the government is healthy for any economy.”
However, he acknowledges the confusion caused by trade policy. “The speed and range of proposed tariffs are shaking the market. The animal spirit has come across reality. It’s much easier to cut spending than to promote growth.”
That’s the case with the large companies Despite the president’s aspirations, it regenerates the notion that tariffs drive them to build domestic capabilities.
California-based Toymaker Mattel has earned half of its sales from the US, but CEO Ynon Kreiz says tariffs aren’t incentives to manufacture there.
This, despite the company’s efforts to diversify its manufacturing bases over the past six years, none will provide more than a quarter of the production of Barbie dolls, hot wheel cars and other toys by 2027.
“It’s about overall cost considerations,” Kreis said in an interview. “We don’t see an economy that makes products in the US compared to other countries.”
Attending this week’s business roundtable meeting with Trump in Washington, Kreis says moving Mattel’s manufacturing sites is one way to offset tariffs, while the other is to raise prices for customers. “In the end, when it comes to the impact of tariffs, we’ll take pricing to mitigate it if we need to do that,” he says.
Tesla, the electric car maker of masks, warned in a letter to US trade representative Jamieson Greer that the trade war could target its retaliatory tariffs and increase the cost of building American vehicles.
The prospect of price increases as a result of increased tariffs rests on consumer minds. The University of Michigan Consumer Sensation Index slipped another 11% to 57.9 in March. The index erased all profits posted in the aftermath of Trump’s election victory in November. “Many consumers cited high levels of uncertainty about policy and other economic factors,” the researchers noted.
Erica York, vice president of federal tax policy at the Tax Foundation, says Trump’s lack of a clear strategy for the growing trade war depends on the economy. “We hear contradictory goals from the Trump administration almost every day,” she says.
Trump says taxes on Canadian and Mexican products are needed to force action against fentanyl trafficking and undocumented immigrants, for example, but he also hopes to move industries such as automation to the US and raise massive amounts of federal revenues to offset the impact of expansion on tax cuts.
York estimates collection will in light of retaliation by US partners and reduces US GDP levels by 1% compared to previous forecasts. She is enough to wipe out the positive effects from the extension, she added.
Given the ongoing outlook for chaos, investors have bet in recent years that they have provided outstanding growth stories. The US economy is now losing some of its sheen that will surprise representatives who have been so fascinated by the WEF in January. “For me, the Davos consensus is always wrong, but this year, people in the US have not seen much drugs,” says Serra of Algebra. “It was surreal.”
Changing US expectations renews interest in markets like Europe, where investors believe Trump’s whimsicality is what makes Bullock involved in action. They point to a sudden shift in Germany to investment fueled by deficits and infrastructure, and hope that the EU will also respond by accelerating progress towards a long-standing deepening of capital market unification.
“Some initiatives this US administration is adopting will spur Europe to do some of the things it’s talking about but doesn’t,” says Neuberger Berman’s Amato. There is a “recognition that Europe must promote growth and invest more in defense.”
Meanwhile, recent Chinese innovations have reaffirmed the issues surrounding the technological advantage of the United States. The emergence of a new AI model from startup DeepSeek is comparable to the best models from US leaders such as Openai, Humanity and Meta, but rattles off stocks in highly regarded US tech companies using chips that are trained and unsleashed at a fundamentally low cost. China is also planning a satellite constellation that can challenge the Mask’s Starlink system.
The dollar decline so far this year has reflected a more pessimistic atmosphere, along with the unprecedented performance of the US stock market. By Friday afternoon, the MSCI USA Index had fallen 4.4% since its launch in 2025, but increased 7.7% in MSCI Europe under the euro condition.
Vincent Mortier, group chief investment officer at Amundi, Europe’s largest asset manager, said: “It’s a wake-up call.”
Data visualization Ray Douglas and Keith Frey
