While President Trump’s tariff announcements sparked a surge in trade policy uncertainty this year, the impact on actual economic activity is barely visible, according to Goldman Sachs Research.
Our economists initially feared that trade policy uncertainty under a second Trump administration would be substantial drag on investment, jobs, and economic activity in countries exposed to the tariffs. Estimates from the last trade war in 2018-19 initially suggested that an increase in trade policy uncertainty could subtract around 0.3% from GDP in the US and 0.9% in the euro area, with similarly large impacts globally.
Yet, even as policy uncertainty surged above levels during the last episode of trade tensions, indicators of investment, manufacturing employment, consumer spending, and overall activity have mostly followed their prior trends since late 2024. Meanwhile, Goldman Sachs Research’s country teams’ forecasts for the second quarter and full-year growth show net increases from previously downgraded levels.
“There are very few signs that uncertainty is taking a toll on activity,” eight months since trade policy uncertainty spiked, write Goldman Sachs Research’s Joseph Briggs, who co-leads the Global Economics team, and economist Sarah Dong.
Does trade uncertainty harm the economy?
Generally, economic theory holds that uncertainty should mostly delay investment, whereas actual policy changes deter it. That impact tends to be frontloaded since the cost of pausing investment following a rise in uncertainty is small while the cost of making an irreversible investment is large.
Furthermore, our researchers—along with those at the Federal Reserve—have found that the drag on investment appears to peak within three to six months of a trade policy uncertainty shock before recovering quickly. This is similar to the impact of non-trade-related economic uncertainty caused by shocks such as geopolitical tensions, changes to economic policy, and market volatility.
While the size of the impact from policy uncertainty was very difficult to pin down given the limited number of increases in policy uncertainty in modern economic data—particularly ones as large as delivered since the last election—most market participants expected that it would slow global growth in 2025.
Instead, current activity indicators across countries have shown very little correlation between trade policy uncertainty and economic activity. What’s more, our researchers found little difference in activity trends among countries that did and did not increase exports to the US this spring. That suggests that frontloading can’t fully account for the lack of an uncertainty drag to date.
Why isn’t trade uncertainty showing up in economic data?
Briggs and Dong write that several factors might help explain why the drag on growth from trade uncertainty has not been visible.
First, trade-exposed investment by manufacturing firms accounts for a small share of GDP in most countries—less than 1% on average. That suggests the drag on growth “may just be too small to see” in the aggregate, the authors write. While new factory investment has pulled back considerably over the past three months, especially in countries that are more exposed to US tariffs, such spending only accounts for 0.2-0.3% of GDP in major economies.
Second, uncertainty slows growth through its interaction with financial conditions, such as prevailing interest rates, credit spreads, and equity market levels. And financial conditions have eased since the start of the year, which may have dampened the drag from trade policy uncertainty. Specific government policies put in place in reaction to President Trump’s tariffs, such as a stronger-than-expected fiscal reaction in Germany and other economies, may have helped compensate for the uncertainty increase.
Finally, standard uncertainty measures may have overstated the initial rise in uncertainty that became more “real” in April, when President Trump announced a broad package of import duties on “Liberation Day.” While activity and investment expectations turned lower in April, these shifts have largely reversed on the back of better tariff news.
“Taken together, the timing of uncertainty impacts and the limited channels for it to affect growth suggest that the peak trade policy uncertainty drag on growth should be behind us,” Briggs and Dong write. “While we continue to expect that tariffs will slow activity later this year, we expect this will be mostly driven by the direct impacts of tariffs rather than uncertainty around trade policy.”
