When the Policy Is the Risk

Tariffs. Improvisation. Credibility collapse in America’s 2025 economy.

When policy improvisation becomes the norm, collapse stops being a risk. It starts becoming a timeline.

After five years of back-to-back shocks — pandemic panic, supply chain meltdowns, inflation spikes, policy whiplash — 2025 is no longer about testing U.S. economic resilience. It is revealing how little of it remained to begin with.

Small businesses are bleeding on their balance sheets. Credit spreads flash warning signs. Families are making triage-level choices in grocery aisles. The pain is real and visible.

Trump returned to the White House in early 2025 and moved fast. Tariffs were reinstated and increased. Chinese imports were hit with rates reaching 145 percent. For some goods, the duty burden reached levels last seen in 1909 under William Taft.

Companies like Lalo, dependent on Chinese manufacturing for baby gear, were cornered. Imports halted. Revenue forecasts collapsed. Temporary price cuts only delayed the inevitable.

By May, tariffs were reduced to 30 percent. But the damage had already taken root. Firms scrambled, over-imported, or froze procurement entirely. Lawsuits increased. Investment plans were shelved. Corporate planning routines disintegrated.

Macro data sends a clear message.

Real GDP contracted 0.3 percent in Q1. Consumer spending remained stable for the moment, but the trend looks like the end of a cycle rather than a soft landing.

Headline inflation fell to 2.3 percent. Core inflation remained stuck at 2.8. This is not stability. It is stagnation dressed in policy-friendly disguise.

The Fed kept rates at 4.25 to 4.50 percent. Not because of confidence. Because there were no safe exits left. Easing risks a new wave of inflation. Staying tight drives growth off a cliff. Monetary policy has lost its leverage.

Small businesses struggle to breathe. Leverage is high. Credit flows are drying. Over one-third of firms now hold more than 100,000 dollars in debt. Loan rejection rates continue climbing. Margins are thinning. Optimism is evaporating.

The consumer story is no better. Momentum fades quickly. Jobs technically increase, but the foundation is fragile. Unemployment stands at 4.2 percent, yet the underlying deterioration spreads fast. Student loan delinquencies jumped from 1.0 to 8.2 percent in one quarter. Credit card and auto loan defaults are rising.

The financial cushion from the pandemic years is gone. Savings are depleted. Households are out of runway.

Mortgage defaults are still low. But much of this so-called stability depends on inheritance transfers, multiple jobs, and an unsustainable juggling of liabilities.

Consumer sentiment is scraping the bottom.

Spending continues. But surveys show widespread frustration and exhaustion. Sentiment leads behavior. And cracks are forming.

Markets reflect this shift. The S&P 500 remains negative year-to-date. Treasury yields spike sharply. Credit spreads widen. Institutional flows rotate into cash and defensive positions. BlackRock and others now advise clients to expect long periods of instability.

The Fed has not cut rates out of comfort. It has simply run out of good moves. The stalemate drags on.

Moody’s downgraded U.S. sovereign debt in May. Citing ballooning deficits and a fiscal architecture that resembles a draft on a napkin. Debt-to-GDP is projected to hit 134 percent by 2035. Interest payments now match defense spending.

The post-COVID entrepreneurship wave is fading. New business creation remains high in nominal terms, but the energy behind it is slowing. Many of these ventures came from necessity, not innovation. Now they face falling margins, limited access to capital, and increasingly fragile demand.

Policy does not offer much relief. Major economic changes now come by executive order. Congress plays a secondary role. Businesses try to adapt, but the room for mistakes is disappearing.

Supply chain diversification takes time. Financing is scarce. Households have no reserves left.

Some areas of the economy still hold. Employment remains intact. Industrial output has not collapsed. But survival is not the same as resilience.

The combined impact of tariffs, fiscal instability, and erratic policy erodes what remains of the system’s capacity to absorb shocks.

This is not about potential risk anymore.

The evidence is present in GDP numbers, debt metrics, inflation trends, credit conditions, and consumer sentiment.

It only requires attention.

Whether the coming year offers relief or accelerates the breakdown will depend on two things: policy clarity and public trust.

Both are missing. And time is running out.