The Trump administration talks a lot about stoking American business investment, an admirable and important goal. In March on social media, President Trump said that his first two months back in office had seen more private investment “spoken for, and/or committed to” than the prior four years. The Washington Post’s Glenn Kessler noted that the president’s claim compared apples (focusing on money spent to develop new factories) with oranges (vague corporate announcements about future investment).
This month Mr. Trump justified his threatened raft of increased global tariffs with a similar claim: that erecting trade barriers would drive an investment surge. In his White House Rose Garden “Liberation Day” speech, the president said, “Many of the biggest companies in the world, they’ve committed to build, build, build. ‘We’re going to build, build, build, sir.’”
That overlooks the economics. Tariffs make it harder for companies to invest. And even now that some of the most egregious levies have been paused, historically significant global tariffs remain in place. The back-and-forth on the size and timing of these taxes on trade is damping investment by denying businesses the predictability and stability they need in the business climate.
This effect goes beyond the well-documented and serious threats to consumer prices and inflation posed by a trade war. Business investment generates the long-term productivity growth that contributes to American living standards and prosperity. It includes building the factories, producing the energy and building the equipment that enable manufacturing. It also includes research and development, encouraging innovation in our services-heavy economy.
We know the conditions under which businesses boost investment. When economic growth accelerates, business leaders grow more confident that their investments will produce returns and they can invest more. When corporate leaders can be reasonably confident that the business climate isn’t subject to a drastic policy shift, like revved-up tariffs, they’re more likely to invest. And when businesses can get cheaper access to capital from markets and other inputs, they can invest more. Governments should work to improve those conditions, providing for broad economic growth and broad access to capital.
Mr. Trump’s existing and threatened tariffs undermine these conditions. In the wake of the Liberation Day announcement, economists at JPMorgan expected the tariffs to cause a recession this year, anticipating a drop in consumer and investor demand. Mr. Trump’s 90-day pause on the largest tariffs may mitigate this risk, or persistent uncertainty may exacerbate it. Last week, the Budget Lab at Yale University reported that it expects current tariff policy to persistently shrink our annual economic output by $170 billion in today’s dollars as our ability to produce goods and services declines.
The recent stock market slide, which anyone checking a 401(k) could see, shows it is getting harder for companies to raise capital. Companies generally finance new investments by either raising money in the stock market or borrowing money in debt markets. A volatile and still depressed stock market makes the first option more expensive. Initially, long-term interest rates — which reflect companies’ cost of borrowing — fell in the wake of Mr. Trump’s Rose Garden announcement, which made the second option a bit cheaper. But this past week those climbed sharply, making the second option more expensive as well. Even after Mr. Trump’s backtracking, tariff-induced market chaos leaves conditions more difficult for financing new investments.
Economists have already slashed their expectations for private investment. Before the election, professional forecasters surveyed on the Bloomberg terminal expected real private investment to grow 2.9 percent in 2025. By February that forecast fell to 2.4 percent, as the probability of enacting a protectionist trade policy rose. By the end of March that forecast was 1.8 percent — well below the post-pandemic average.
Some business leaders are already saying they are investing less in response to tariff volatility, even in the industries that the administration is, in theory, trying to protect. This reflects the heightened uncertainty tariffs have placed on markets.
Take the energy sector, which, with higher tariffs, faces higher and more uncertain costs for drilling equipment. In a survey by the Federal Reserve Bank of Dallas, oil and gas executives explicitly blamed tariff-related uncertainty for their hesitation to invest. This could threaten the United States’ position as the largest oil producer, cutting against the administration’s “energy dominance” strategy. Coupled with threats to the Biden administration’s green tax credits for vehicle batteries and renewable energy production, we risk discouraging production of both traditional and clean energy.
Building artificial intelligence infrastructure will grow costlier; Microsoft has slowed data center construction in three U.S. states. Telecommunications analysts expect slower upgrades to cable networks, given the higher cost of tariffed network equipment.
Small businesses are especially affected: In February the chief executive of the Black-owned bourbon producer Brough Brothers Spirits Group in Kentucky told The Times that in a tariff climate his company has had to pare back some of its expansion plans, saying, “It’s just very difficult to make any kind of business decisions.”
Research and development spending is an important component of private investment in the services-heavy American economy, including for pharmaceutical companies, such as Eli Lilly and its competitors. But Eli Lilly also depends on foreign manufacturing: Its chief executive said this month that he expects to reduce R&D investment to manage tariff-driven cost pressures. This is especially bad timing to lose corporate R&D investment, because the administration has also decided to choke off funding for R&D in government and universities.
The Trump administration acknowledges the power of business to innovate, increase productivity and help deliver broadly shared prosperity. But going all in on tariffs restrains that power by making it harder for businesses to invest. Business investment growth was an unsung hero of our economy in recent years, but we need more of it, not less.
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