Something important didn’t happen after President Trump said he planned to double import taxes on steel and aluminum on May 30: Markets didn’t tank. Traders took it in stride and a modest rally in stocks continued for the next several days.
Markets may finally be finding solid footing as the halfway point of Trump’s first year in office nears. Stocks have recovered nearly all of the losses incurred as Trump rolled out wide-ranging tariffs in March and April that were far more severe than most investors expected. In early April, the S&P 500 (^GSPC) index was down 16% for the year. It’s now up 2% for the year. Another gain of 2.3 percentage points would put the S&P at a new record high.
The underlying real economy is looking better too. Recession odds as measured by the Polymarket prediction site peaked at 66% on April 9 and again on May 1. They’ve now fallen all the way back to 26%, almost exactly where they were when Trump took office on Jan. 20.
“Trump’s tariff turmoil caused lots of uncertainty for workers and their employers, particularly during April and May,” economist Ed Yardeni of Yardeni Research wrote in a June 9 analysis. “It was widely expected that consumers might cut back their spending because of the uncertainty, especially if businesses responded to Trump’s tariffs by reducing their payrolls. So far, the evidence shows that consumers are still spending, and businesses are still expanding their payrolls. The most widely anticipated recession of all times remains a no-show.” Yardeni has dropped his own recession odds from 45% in early May to 25% now.
Trump himself has helped lower the odds of a recession. It wouldn’t be right to credit Trump with juicing the economy. His own policies, mainly tariffs, have been the biggest problem for markets and the economy in 2025. But Trump has backed down from the worst of his threats and shown, whether deliberately or not, that he is sensitive to market outcomes.
The most damaging move Trump has made so far was the severe tariffs he announced on April 2, which he called “Liberation Day” and cynical traders dubbed “Annihilation Day.” Those tariffs would have raised the average tax on imports from about 2.5% when Trump took office to roughly 28%. The steepest stock sell-off of the year occurred during the week following Annihilation Day.
President Donald Trump waves as he boards Air Force One at Morristown Municipal Airport in Morristown, N.J., on his way to Camp David, Md., Sunday, June 8, 2025. (AP Photo/Manuel Balce Ceneta) ·ASSOCIATED PRESS
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On April 9, Trump said he’d postpone the tariffs for three months, until July 9, while working on individual trade deals with dozens of countries that might avert them. At the same time, he raised the total tax on Chinese imports to 145%. But a month later, Trump lowered that to 30%.
The average tax on imports is now around 16%. That’s the highest level since 1937, and still an impediment to growth. But it’s a big improvement over 28% and investors seem to have renewed faith that Trump will bow to markets. The “TACO trade”— premised on the idea that Trump Always Chickens Out on tariffs — is the latest expression of market hopium, even if it isn’t completely true.
Another unrealized fear is that Trump’s crackdown on illegal immigration would lead to widespread deportations of people who are an important source of labor. Unauthorized migrants may hold as many as 6 million jobs in sectors such as agriculture, construction, hospitality, and manufacturing. There are few Americans standing in line to take those jobs if the migrants suddenly disappear. In fact, the nation needs more legal immigration to offset a declining birth rate and an aging society, or else growth and productivity will trend permanently downward.
That’s not a defense of illegal immigration. It’s just economic reality that unauthorized laborers push job and economic growth higher. Losing those workers would have the opposite effect. Trump has sharply reduced the inflow of unauthorized migrants and undertaken some high-visiblity, TV-ready crackdowns. But he hasn’t conducted widespread raids to root out migrants already here.
“Tighter immigration policies have reduced net immigrant inflows but appear to have had a limited impact on immigrant workers already in the US,” Goldman Sachs noted in a June 9 report. “The immigration crackdown appears to have had less impact on the ability of recent immigrants already in the US to keep working.”
None of this translates into a coming Trump boom. Instead, it’s a slowdown that might be less dramatic than the full-Trump worst-case scenario. Corporate profits seem likely to hold up through 2025 and into 2026. Inflation caused by tariffs might be noticeable in some categories, such as clothing, electronics, and toys, but offset by lower gasoline prices. The post-COVID hiring boom is likely to be over, but that doesn’t mean mass layoffs or soaring unemployment are coming next.
Trump still has a lot of control over how the rest of 2025 goes. If the July 9 deadline for trade deals arrives and Trump reimposes many of the tariffs, markets will reel anew. If the big tax-cut bill Trump is pushing adds too much to the deficit, bond-market wobbles could send interest rates uncomfortably high. The tax cuts might not have the stimulative effect Trump is hoping for, since many of them aren’t new tax cuts, just extensions of ones enacted in 2017.
Avoiding a recession is obviously better than causing one, but it isn’t necessarily a win for an incumbent president. There was no recession during Joe Biden’s presidency, yet he left office with a weak approval rating and a loss to the opposition party in the 2024 presidential election. Inflation was the scourge of Biden’s presidency, and it could yet haunt Trump if he persists with tariffs.
Many Americans are also stuck in go-nowhere mode, left behind by a tech and service economy that increasingly funnels more wealth to the top and less to the bottom. Trump’s “America first” narrative pays heed to that, and attacks on elite institutions such as Harvard and a collection of blue-blood law firms give downtrodden Americans a few villains to root against. But Trump has few plans to actually help the disaffected. His tariffs aren’t likely to create many jobs, and his tax cuts will favor the wealthy even more. The Trump economy might not end up ruinous, but that doesn’t make much of a bumper sticker.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.
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