World Defies Turbulence

Sebastien Callebaut -

Consumers Keep Consuming

Despite a historic surge in tariffs this year, the global economy has demonstrated an unexpected strength, confounding predictions of a sharp slowdown. Rather than stalling, economic momentum has persisted as businesses and consumers adapted with agility, deploying strategies to cushion the immediate impact of trade disruptions.

  • Faced with a murky and shifting tariff landscape, companies and households have leaned on lessons learned during the COVID-19 pandemic. Firms fortified their supply chains over the past few years, often at the cost of profitability at the time, but those investments are now proving beneficial.
  • Companies have rerouted trade, front-loaded shipments, and diversified suppliers to navigate around new tariff barriers.

Households, meanwhile, have continued to spend and invest at levels that have surprised many economists. Global output in the first half of the year expanded at an annualized pace of 2.4%, roughly in line with historical averages, according to data from JPMorgan.

Global Trade Holds Steady

World trade volumes have shown impressive resilience. The World Trade Organization reported a 5.3% rise in global merchandise trade in the first quarter, driven largely by surging imports into North America. As a result, the WTO revised its annual forecast upward, shifting from an expected decline to modest growth.

  • Even regions most exposed to tariff pressures have managed to stay afloat. European manufacturing indicators have strengthened, and key sectors like automotive—despite facing significant U.S. import tariffs—have avoided the steep declines that many feared.
  • This suggests that the recent increase in activity is not merely due to pre-emptive stockpiling but reflects a broader, more stable recovery.
  • One notable trend among international manufacturers is the growing push to localize production. Years of anti-globalization sentiment and recent tariff hikes have prompted companies to rethink their manufacturing footprints. German fan-maker EBM Papst, for example, is planning its third U.S. factory to better serve American customers while avoiding tariff exposure. The company forecasts sustained double-digit growth in the U.S., supported in part by demand from data centers fueling the AI revolution.

Similar dynamics are playing out across Asia. While Chinese exports to the U.S. dropped by about 10% in the year’s first five months, China’s overall export activity remained robust, bolstered by increased trade with other Asian nations, Europe, and Africa. This pattern suggests a rerouting of goods, with Southeast Asia acting as a trade conduit into the U.S. U.S. imports from Southeast Asia rose 28% year-over-year in the first four months of 2025, with overall imports from Asia up 10% despite cooling ties with China.

Strong Consumer Foundations

In the United States, household wealth remains elevated relative to disposable income, giving consumers the ability to absorb higher prices. This has allowed many businesses to pass some of the added tariff costs onto customers without significantly denting demand. For example, prices for imported Italian Parmesan cheese have edged higher due to tariffs, but U.S. sales remain robust, buoyed by pre-tariff inventory buildup.

  • The pattern of resilient consumer demand extends beyond luxury foods. U.S. imports from Europe jumped in the year’s first five months, indicating a sustained appetite for foreign goods despite higher prices.
  • Still, economists caution that the resilience may be temporary. Much of the recent strength could reflect front-loaded orders aimed at avoiding future tariffs. As those advance purchases taper off, trade volumes and business activity may soften.

Moreover, the political implications of the current strength could embolden policymakers to pursue even more aggressive tariff strategies. Analysts warn that while a moderate tariff level may have minimal macroeconomic effects, steep rates—such as 30% or more—could severely disrupt global trade. European officials have voiced concerns that such scenarios could effectively freeze transatlantic commerce.

Disclaimer

Please note that Benchmark does not produce investment advice in any form. Our articles are not research reports and are not intended to serve as the basis for any investment decision. All investments involve risk and the past performance of a security or financial product does not guarantee future returns. Investors have to conduct their own research before conducting any transaction. There is always the risk of losing parts or all of your money when you invest in securities or other financial products.

Credits

Photo by Guillaume Bolduc / Unsplash.