Consumer confidence rose more surprisingly than expected in May. This change represents a dramatic turnaround after several months of negative sentiment linked to tariff practices that dominated Donald Trump’s presidency. The recent trade deal between the U.S. and China has been hugely important in this reversal. Helping to improve the outlook is the easing of sector-specific tariffs.
The U.S. currently imposes a broad 10% tariff on imports from nearly all countries, a legacy of the previous administration’s aggressive trade stance. Trump’s administration already imposed far-reaching “reciprocal tariffs” on several countries. Those tariffs have now been suspended, too, just like the other needless, across-the-board levies. At first, this new, holistic approach worried both consumers and businesses. In response, all but one of the major companies raised the warning flags over possible price hikes.
The U.S.-China agreement struck earlier this month is a landmark. Today’s deal represented a notable step back from the escalating tit-for-tat tariffs that had been poisoning relations between the world’s two biggest economies. The reason for this optimism is the relief accord, which has raised consumer sentiment to new heights. Consequently, the stock market has exploded upwards, leading Wall Street firms to downgrade their recession predictions.
Furthermore, Trump’s administration eased tariffs specifically targeting the automotive sector and rolled back duties on goods imported from Mexico and Canada. These recent moves are intended to counter the adverse impacts of those harmful tariffs that are already in place. These tariffs have raised inflation rates and stoked consumer anger. Consumers are now paying the highest overall average effective tariff rate since 1934, as recently noted by the Yale Budget Lab.
Even with these changes, a large tariff-enforcement hammer still hangs overhead, imposing ongoing cost burdens to manufacturers in many sectors of the economy. Doug McMillon, CEO of Walmart, emphasized the widespread impact of these tariffs by stating, “All of the tariffs create cost pressure for us.” He further noted, “The merchandise that we import comes from all over the world,” highlighting the extensive reliance on international trade.
The months of recent tariff relief happened to align with a cooling inflation rate, which fell to its lowest level since 2021. Taken together, these factors have given consumers confidence. Consequently, they’ve put an end to a five-month-long stretch of negative sentiments fueled by tariff-driven concerns. The Conference Board’s measure of consumer confidence has plummeted. It currently remains at its lowest point since before the COVID-19 pandemic, due in large part to continued tariff uncertainties.
