Tariffs and Economic Uncertainty: Why There’s Still Reason for Optimism

As a marketer trained in the “dark arts of economics,” I consider behavior in the economy every day. Though the assumptions in these models are often laughably absurd, the magic of the analysis lies in how oversimplifying complicated behavior makes it understandable.

The U.S. economy is a very complicated behavioral system, but it can be simplified to a few basic components. All the production and consumption of our economy come together through voluntary transactions. A producer sells something to a consumer for a price, and this happens because both are better off for it. If not, one of the parties would walk away. Transactions are widespread because we learned long ago that it is inefficient for each person to produce everything they need. We specialize, create something of value, and exchange it with others to get the things we need. This behavior is how the wealth of nations is created, moving assets such as labor and resources to their highest-valued uses.

Cities, states, and different regions of our country specialize in production. Beyond our border, specialized production by different regions of the world is as old as travel itself. Nations specialize, creating things for which they have an advantage in the global market, and trade them with other nations to get the things they need.

Enter the Taxman

For better or worse, tariffs are taxes. When taxes raise prices, some percentage of transactions will no longer occur as the benefit to one or both parties decreases. This is why tariffs have a contractionary effect on the economy and wealth creation. This is especially the case when reciprocal tariffs spiral upward.

However, any objective economist would confess that there are practical justifications for tariffs. Some industries may be necessary for national defense or food security and can be protected via trade policy. Another oft-cited reason is trade deficits, but the issue is not the deficit per say. For example, I have spent a considerable amount at my favorite taco joint in Columbus, but they have never purchased education from me. While I have a clear “trade deficit” with that establishment, I recognize these transactions as mutually beneficial.

With that said, trade deficits can lead to concerning behaviors. Dollars that do not return to our country through trade are often invested in U.S. financial markets, real estate, and businesses. Ownership yields influence, and growing foreign influence should always be a security concern. So, like most things in the world, there are arguments for and against tariffs.

Tariffs in Practice

The largest trade deficit the USA faces is with China, reaching over $290 billion in 2024. According to the 2025 U.S. Census, tariffs decreased this trade deficit to around $202 billion. Imports from China decreased while imports from Vietnam, Taiwan, India and Mexico increased.

With that said, the evidence is mixed. A February 2026 Bloomberg article highlights discrepancies in cargo shipments. This suggests an increase in “origin washing,” wherein Chinese companies simply ship goods through countries with lower tariff rates by misrepresenting the country of origin. Other countries are willing to play along for a cut of the profit. Advertisements in Chinese social media indicate that this is happening.

Another explicit goal of the current tariff policy is to increase manufacturing in the U.S. Though manufacturing orders consistently decreased in 2025, the ISM Purchasing Managers Index shows orders have increased for 2 consecutive months. Hence, it appears that manufacturing is rebounding, but is the sector growing?

While U.S. manufacturing is rising as of late, employment in that sector continues to decline. Additionally, total manufacturing construction has dropped dramatically after the last election, decreasing by over 18% from its peak in 2024. This shows that while orders may be increasing, manufacturing companies are not yet investing in additional talent and facilities to increase production.

What is the Real Problem?

Regardless of one’s opinions on tariffs, a very real problem with the current policy is the economic uncertainty surrounding its implementation. Humans can be risk-averse even when the economy is booming, and policy is consistent. Vacillating tariffs that can dramatically impact costs with a single social media post are concerning —but they’re not the only issue. Lingering inflation, multiple wars, and the looming threat of losing employment to AI all weigh heavily on the minds of managers and consumers.

The behavioral implication is a reduction in transactions.

When transactions decline, production follows, and the economy suffers. The lack of investment in manufacturing, the “frozen” job market of 2025, the downturn in overall job growth in 2026, and the lower demand for recent graduates can all be explained to some degree by the costs of current economic uncertainty. If consumers perceive they are in danger, the spiral begins, and the economy swiftly moves into recession.

Reasons for Optimism

The Supreme Court’s decision has not eliminated the uncertainty around tariffs, but it does require the use of more narrow channels to implement them. If the relative stability (and lower rates) around tariffs over the last couple of weeks continues, this could bode well for the economy. On the AI front, firms like IBM are realizing that while AI can do many tasks well, it is better deployed as a “thinking partner” than a full replacement for humans (something we teach in the Fisher AI Fluency framework). With an increasing focus on how human-AI collaboration can enhance overall firm value, there is a very real possibility of future job growth as production expands in new ways.

In any case, I implore everyone to remain optimistic. If I have learned anything through the study of choice and economic behavior, it is that motivated humans will adapt, innovate, and find a way forward.

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