WASHINGTON (AP) 鈥� American businesses are cancelling orders from China, postponing expansion plans and hunkering down to see what trade policy surprises President Donald Trump plans to spring on them next.
The president鈥檚 massive and unpredictable taxes on imports seem likely to mean emptier shelves and higher prices for American shoppers, perhaps within weeks.
And the higher costs and paralyzing uncertainty could exact an economic toll: U.S. consumers are in the biggest funk since COVID-19 hit five years ago, and economists say recession risks are climbing.
An early sign of the damage emerged on Wednesday when the Commerce Department released its first look at first-quarter economic growth.
The U.S. economy , the first drop in three years. Gross domestic product 鈥� the nation鈥檚 output of goods and services 鈥� was down from 2.4% in the last three months of 2024. Imports shaved 5 percentage points off first-quarter growth. Consumer spending also slowed sharply.
Asked how much of deterioration in the world鈥檚 biggest economy could be traced to Trump鈥檚 erratic policies, Boston College economist Brian Bethune said: 鈥淎ll of it.鈥欌��
As he promised on the campaign trail, Trump has upended decades of American trade policy. He鈥檚 been imposing 鈥� then sometimes suspending 鈥� big import taxes, or tariffs, on a wide range of targets. He鈥檚 currently plastered a 10% levy on products from almost every country in the world. He鈥檚 hit China 鈥� America鈥檚 third-biggest trading partner and second-biggest source of imported goods 鈥� with a staggering .
China has responded with retaliatory tariffs of its own 鈥� . The take-no-prisoners trade war between the world鈥檚 two biggest economies has shaken global financial markets and threatened to bring U.S.-China trade to a standstill.
Gene Seroka, executive director of the Port of Los Angeles, warned last Thursday within two weeks arrivals to the port 鈥渨ill drop by 35% as essentially all shipments out of China for major retailers and manufacturers has ceased.鈥欌�� Seroka added that cargo from Southeast Asia also 鈥渋s much softer than normal with tariffs now in place.鈥欌��
After Trump announced expansive tariffs in early April, ocean container bookings from China to the United States dropped 60% -- and stayed there, said Ryan Petersen, founder and CEO of Flexport, a San Francisco company that helps companies ship cargo around the world. With orders down, ocean carriers have reduced their capacity by cancelling 25% of their sailings, Flexport said.
Many companies tried to beat the clock by bringing in foreign goods before Trump鈥檚 tariffs took effect. In fact, that is a big reason that first-quarter economic growth is expected to come in so low: A surge in imports swelled the trade deficit, which weighs on growth.
By stockpiling goods ahead of the trade war, many companies 鈥渨ill be positioned to ride out this storm for a while,鈥欌�� said Judah Levine, research director at the global freight-booking platform Freightos. 鈥淏ut at a certain point, inventories will run down.鈥欌��
In the next few weeks, Levine said, 鈥測ou could start seeing shortages ... it鈥檚 likely to be concentrated in categories where the U.S. is heavily dependent on Chinese manufacturing and there aren鈥檛 a lot of alternatives and certainly quick alternatives.鈥欌�� Among them: furniture, baby products and plastic goods, including toys.
Jay Foreman, CEO of toymaker Basic Fun, said he paused shipments of Tonka trucks, Care Bears and other toys from China after Trump鈥檚 tariff plan was announced in early April. Now, he鈥檚 hoping to get by for a few months on inventory he鈥檚 stockpiled.
鈥淐onsumers will find Basic Fun toys in stores for a month or two but very quickly we will be out of stock and stock product will disappear from store shelves, 鈥� he said.
Kevin Brusky, who owns APE Games, a small tabletop game publisher in St. Louis, has about 7,000 copies of three different games sitting in a warehouse in China. The tariff bill of about $25,000 would wipe out his profit on the games, so he is launching a Kickstarter campaign next week to help defray the cost of the duties.
Still, his sales representative is urging him to import the games if possible, because he expects that retailers will soon be desperate for products to sell. If he does import the games, Brusky is considering raising its price from $40 to at least $45.
Worried that tariffs will push up prices and drive away customer, retailers have put expansion plans on hold for next year, said Naveen Jaggi, president of retail advisory services in the Americas for real-estate firm JLL. 鈥淲hat they are telling us is: 鈥榃e want to slow down the decision to open up stores and commit to leases鈥� because they want to watch how the consumer reacts.鈥欌��
Consumers already seem to be freaking out. The Conference Board, a business group, for the fifth straight month to the lowest level since the onset of the COVID-19 pandemic. Nearly one-third of consumers expect hiring to slow in the coming months, nearly matching the level reached in April 2009, when the economy was mired in the Great Recession.
Consumer spending accounts for about 70% of U.S. GDP so if nervous consumers stop shopping, the economic fallout could get ugly. Economist Joseph Brusuelas of the consultancy RSM pegs the probability of a recession within the next 12 months at 55%.
Even gloomier is Torsten Slok, chief economist at Apollo Global Management. He sees a 90% chance of a recession by this summer if Trump鈥檚 tariffs remain in place. Businesses are already planning on significant disruptions, particularly from the 145% duties on goods from China, he said.
鈥淵ou see that in company reactions: Orders are down, (spending) plans are down, costs are up, prices paid are up,鈥� he said.
He expects large layoffs by trucking firms and retailers as soon as late May, as the slowdown in goods coming into U.S. ports from China works its way through the supply chain.
Flexport CEO Petersen said shortages of products are 鈥渘ot a tragedy."
鈥淚t鈥檚 going to be much more about the layoffs that follow,鈥� Petersen said. "That鈥檚 where the real pain is going to be felt. Shortages mean companies aren鈥檛 selling stuff and therefore don鈥檛 have the profits that they need to pay their workers.鈥欌��
He said the stakes are so high that he expects the U.S. and China to deescalate their trade war and bring down the tariffs. In fact, Trump and his advisers have sounded more conciliatory lately. Treasury Secretary Scott Bessent, for example, said that the triple-digit tariffs the U.S. and China have slapped on each other
But more abrupt shifts in trade policy risk increasing the uncertainty that has paralyzed businesses and worried consumers.
Moreover, said economist Cory Stahle of the Indeed Hiring Lab, 鈥渃onditions may worsen in the coming months if people start behaving like they are in a recession. Softening some of the recent trade policy changes may ease some business concerns, but it may already be too late.鈥欌��
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D'Innocenzio reported from New York
Paul Wiseman, Anne D'innocenzio And Christopher Rugaber, The Associated Press
