Many financial analysts and investors misinterpret what is happening in the US economy today. Some believe that the uncertainty surrounding US President Donald Trump's trade and economic policies is receding, while a smaller but particularly noisy group argues that mass deportations of migrants and tariffs have not caused the damage that was predicted. They point out that inflation rose only mildly before de-escalating in 2025 and that the most recent data show the economy growing at the fastest pace in two years.
These estimates, however, are based on a fundamental misunderstanding of how government-induced uncertainty affects the economy. The confusion is understandable to some extent: no U.S. government in more than a century has imposed such magnitude and uncertainty on the private sector.
Strong growth, at the same time, fuelled by investments in artificial intelligence clouds the picture even more. A careful analysis, however, shows that the stagflationary effects of Trump's policies have already begun to kick in and will become impossible to ignore as we approach the first anniversary of so-called "Liberation Day" in early April.
It should come as no surprise that it takes time for official statistics to reflect the paralyzing effects of tariffs and deportations on decision-making by businesses, households and investors. The Peterson Institute's analyses predicted from the outset that it would take at least a year to see the macroeconomic impact. The estimate is that in 2026 the consumer price index will increase on average at a rate of about 4% or even higher, from 2.7% at the end of 2025.
It may now seem distant when Trump began mass deportations of irregular immigrants and imposed tariffs on a wide range of imports, with rates that vary greatly by product and country. However, businesses had to resolve a number of uncertainties before deciding whether and how much to raise prices or rearrange their supply chains. Will the tariff threats finally materialize? Will they be annulled by the courts or will they be negotiated? And if they remain, will there be exceptions through political interventions?
Waiting
Here are the critical questions for production: moving from China to Mexico, relocating to third countries, or repatriating production to the U.S.? Even giants like Caterpillar and Toyota appear hesitant to make large-scale decisions. If larger and better-prepared companies lag behind, it is reasonable that small and medium-sized enterprises will follow with an even greater time lag. The temporary solution of stocks from imports before the imposition of the tariff measures has now been exhausted, which means that the increased costs will be passed on – now inevitably – to consumers.
Similar phenomena of delay in the appearance of results are observed in immigration policy. Although the US government claims to have deported about 1 million people. In the first year of Trump's second presidential term, employment figures in sectors heavily dependent on the migrant workforce – such as agricultural production, food processing, home care and home construction – remain virtually unchanged. This suggests that the mass exodus has not yet taken place.
These positions are characterized by low pay, difficult conditions, and limited benefits, which is why they do not easily attract legal workers. Replacing human labour by machines or robots is not yet technologically or economically feasible in many of these areas. But when the reality of deportations becomes fully felt in 2026, labour shortages will appear, forcing employers to raise wages and further amplifying inflationary pressures.
The uncertainty also explains the dual picture of investment in the US: an explosive rise in artificial intelligence and almost zero growth in the rest of the private sector. Despite the tax breaks, low real interest rates, an abundance of liquidity and the deregulation that the Trump administration has indulged in, businesses are hesitant. As economists Avinash Dixit and Robert Pindyck have shown, when uncertainty rises, investments that are difficult to reverse if things change, are simply postponed.
Past experience shows that such political shocks are not directly reflected in the main macroeconomic indicators, but operate cumulatively. This delay often leads governments and markets to become complacent, until the effects become abruptly visible – and then they are difficult to reverse.
Trust
In the case of the US, the coexistence of heightened uncertainty with strong, but sector-specific investments creates a misleading picture of resilience. As in other economies facing political upheavals, a decline in confidence precedes a downturn in activity. When decisions are belatedly translated into real shortages of labour and inputs, pressures on prices and wages will intensify.
The US risks experiencing something similar to the UK after the Brexit referendum, when private investment was frozen for years, undermining growth. The boom in artificial intelligence may offset some of the losses, but at the same time it will intensify inflationary pressures. The fact that the full account of Trump's policies has not yet appeared does not mean that economic analysis has failed; It just goes to show how strongly uncertainty can delay – or even paralyze – economic decisions.
Adaptation – Editing: George D. Pavlopoulos
