August 2, 2025: I first wrote this post in late May. Since then there have been ups and downs in the economy. However it now seems increasingly clear that the chickens are coming home to roost. This article from the Wall Street Journal documents slowing economic growth and a weaker employment market. The cost of tariffs is now showing up in the both corporate earnings and consumer prices.
A few weeks ago, I was asked to grade Donald Trump’s economic management for an article in The Wrap. I wanted to give him a gentleman’s D—but ultimately, I gave him an F. Why? Because he inherited a strong economy: the stock market was high, unemployment was low, and inflation was under control. Through a series of reckless and ill-considered policies, he has put the U.S. economy at serious risk of recession—or worse.
Since that article was published, there have been minor walk-backs. A 90-day deferral on some tariffs gave a fleeting sense that the trade wars were cooling, and the stock market rebounded slightly. The panic seemed to subside. Some even hoped these were signs of a return to normalcy.
I disagree. This period reminds me of the “Phony War” that followed the German invasion of Poland in 1939. For nearly a year, little happened militarily. Some hoped peace might still be possible. But the illusion shattered in May 1940 when Hitler’s forces blitzed through Western Europe.
Today’s economic calm feels just as illusory.
The Big Three Threats: Budget, Tariffs, and Bond Markets
Set aside for a moment the geopolitical shocks—Gaza, Ukraine, China, or even Greenland. Set aside the cultural and legal chaos stirred up by DOGE’s (Department of Government Efficiency’s) indiscriminate federal cuts. Set aside the DEI backlash, climate disruption, and civil uncertainty. Even without those, the biggest dangers to our economy lie in three deeply connected areas:
1. The Budget: A Big, Beautiful Disaster
According to The New York Times, based on data from the Congressional Budget Office, the House-passed Republican budget (May 22) will add more than $3 trillion to the deficit over the next decade—on top of an already bloated federal debt.
Proponents argue this justifies slashing government operations but when you look at actual spending, the truth is stark:
- Social Security, health programs, defense, veterans affairs, and debt service make up 77% of the federal budget.
- Slashing departments like the FAA, NOAA, or National Parks doesn’t move the fiscal needle—it just undermines critical services.
Increased borrowing at higher rates will trigger cascading effects: higher mortgage and credit card rates, inflationary pressure, and a weakened U.S. credit rating—all already happening.
2. Tariffs: A War Without a Winner
Despite what the Trump administration claimed, tariffs are not paid by China. They’re absorbed by U.S. businesses and consumers. After peaking at an astonishing 145% on some goods, current tariffs on Chinese imports hover around 40–50%—still historically high and economically damaging.
Tariffs only “help” if idle U.S. factories are ready to pick up production. In reality:
- Many goods, especially in tech and textiles, can’t be manufactured at scale in the U.S.
- Rebuilding capacity would take years, $2.9 trillion according to Wells Fargo, and massive workforce retraining. Compounding the problem is that young people have no interest in assembling iPhones in Ohio.
- Here’s a very good article from the Wall Street Journal explaining the challenges of bringing iPhone manufacturing to the United States.
And let’s not forget: much of China’s competitive advantage stems from environmental trade-offs that the U.S.—rightly—won’t accept.
3. Bond Market Risk: A Slow-Motion Crisis
Weak demand at recent Treasury auctions signals waning investor confidence. As interest rates rise to attract buyers, so do borrowing costs for the government and the public. This creates a dangerous feedback loop that could tip us into deeper fiscal instability.
The Most Uncertain Economy of My Lifetime
I’ve lived through Vietnam, Watergate, stagflation, booms, busts, dot-com euphoria and collapse, the housing meltdown, and more. But I’ve never felt less confident in the economy’s direction than I do now.
Some pundits still talk of a boom. I don’t buy it. I’m preparing for a recession—potentially a prolonged one. The Great Depression lasted over a decade. While I’m not calling for that, the risk is no longer unthinkable.
My Strategy: Quality and Liquidity
After reviewing early drafts of this post, some readers have wanted me to devise a strategy to change national policy. That’s frankly above my pay grade. I am thinking about this like a weather forecaster. I can’t stop it from raining, but I can suggest that you carry an umbrella.
Here’s how I am personally responding to these macro trends:
- Favoring high-quality companies with earnings, cash flow, and sustainable dividends.
- Avoiding high-multiple growth stocks reliant on optimistic future projections.
- Reducing exposure to illiquid private investments wherever possible.
Paradoxically, I’m still investing in early-stage startups—carefully. Valuations are more grounded, timelines are longer, and the best companies often thrive through downturns.
Final Thoughts
This isn’t about partisanship—it’s about realism. A resilient economy isn’t built on hope or slogans. It’s built on sound policy, stable institutions, and long-term investment. I don’t see that right now. But I’m planning and investing accordingly.
Let’s be ready—not just hopeful.