Jim Tuchler, a Chicago-area retailer, and Federal Reserve Chair Jerome Powell have a lot in common these days.
Tuchler says the turmoil around tariffs has landed him in a maddening “game of chicken,” in which he can only guess what his import-tax bill might be when it actually comes due. His e-commerce site just placed an order from China for “literally $80,000 worth of stockings,” Tuchler says. “Or is it going to cost me, like, $200,000? How does one plan a business this way?”
Scale that up, and the question facing Powell is much the same. If thousands of businesses can’t foresee input costs, or tax rates on their exports, then how can the Fed forecast the economy’s trajectory? Higher American tariffs could raise inflation. The resulting squeeze on consumers – plus retaliation by other countries — could put a dent in output, hiring and investment. And those outcomes point in opposite directions when it comes to setting interest rates.
It’s an illustration of how President’s Donald Trump’s trade war has turned global commerce into a giant black box – and not by accident.
His Treasury Secretary Scott Bessent describes Trump’s approach as “strategic uncertainty,” a nod at the idea that keeping counterparties in the dark about America’s desired endgame can help secure better deals. However that works out in trade talks, it’s a nightmare for anyone trying to map a path ahead, from businesses to central banks.
The Fed is expected to keep rates on hold when it meets this week. Beyond that, things get murky. Trump and now Bessent too have been leaning on the central bank to start easing policy. Market expectations for a June move are creeping higher.
Michael Hanson, a senior economist at JPMorgan Research, says the house view there is for a cut in September, when the worst tariff inflation should start to recede and the labor market is likely to have weakened. But he acknowledges the unusual degree of opacity arising from the trade war on questions like whether there’ll be a US recession this year.
“It’s not immediately clear what the ultimate outcome is going to be,” says Hanson, whose team is trying to isolate the channels most impacted by tariffs — like business investment — and how inflation could erode consumption. “We talk about risks and distribution of risks.”
‘The Whole Idea’
That will be key to the Fed’s approach too. Its forecasters always have a baseline view. But this time, as they run trade shocks through their models and look at outcomes for prices, growth and employment, alternative paths are likely to carry extra weight.
“More than ever, scenario analysis is really important,” says Seth Carpenter, chief global economist at Morgan Stanley.
Policymakers and businesses seem to agree. The Bank of Canada last month published two sets of forecasts to capture different possibilities, instead of a single projection. United Airlines took the unusual step of issuing two separate profit outlooks, one based on stability and the other on a trade war-induced downturn.
President Donald Trump speaks at the White House during an event on "Investing in America" on April 30, 2025. (Photo by Andrew Harnik/Getty Images) ·Andrew Harnik via Getty Images
Trump’s strategic uncertainty runs in the opposite direction to the way world trade has evolved in the decades since World War II. The thrust of policy has been to create order out of chaos, harmonizing a messy tariff system and creating fixed negotiating rules that allow countries to capitalize on their comparative advantage and gain access to foreign markets.
That system was based on the idea that it makes no sense to have all the World Trade Organization’s 160-plus members setting individual tariff rates at will, according to Alan Wm. Wolff, a former deputy director of the World Trade Organization. It contrasts sharply with the dealmaking culture that Trump has brought to the process, he says. “The whole idea behind trade negotiations is certainty, not uncertainty.”
‘Utterly Unpredictable’
What’s more, trade policy tends to be forward-looking toward some defined end-state – whether it’s better markets for certain goods, or stronger strategic partnerships. In Trump’s case, “there are a lot of questions about how this all adds up to a trade policy, and what the deep underlying objectives are,” says Nathan Sheets, global chief economist at Citibank. “To what extent are they putting on tariffs to take off tariffs?”
The administration has made its objections to the status quo clear – calling for more reshoring of production to the US, for example. But that’s a process that could take years to unfold.
Meanwhile, the current state of play is shifting fast. “I would say that we have deals that are close,” US Trade Representative Jamieson Greer told Fox News on Wednesday. “We’re talking about a matter of weeks and not months, to have some initial deals announced.”
It might take more than that to lift the fog, according to Morgan Stanley’s Carpenter. “One or two deals is not going to remove the relevant uncertainty,” he says. “Deals need to be durable, and left in place for a long, long time.”
Even if there are deals it’s unclear what they will change. Trump and his aides have signaled they want to leave many tariffs in place. A 10% baseline tariff that he imposed a month ago appears likely to endure, as are duties on imports of metals and cars — and forthcoming ones on products from semiconductors and pharmaceuticals to lumber.
In the meantime, Tuchler says he isn’t waiting for perfect clarity. He moved forward with his order, figuring that it would be riskier to hold off and potentially be left without any stockings to sell on his Giftsforyounow.com site come Christmas.
“Everything has been utterly unpredictable,” he said.
—With assistance from Shawn Donnan and Daniel Flatley.
