Tariff whiplash creates ‘wildest of wild cards’ for Michigan, U.S. economy

University of Michigan economists believe the state and national economic outlook remains mostly healthy, even though shifting trade policy has created the “wildest of wild cards” for the forecast.

A May 16 report details how the nation waging an on-again, off-again trade war could impact the economy in coming months and years.

“Outside of the surge of imports, potential early effects of tariffs are quite hard to spot in the official economic statistics, but we expect the tariffs to start to drag on consumption and investment this summer after the rush to beat tariffs over the past several months,” said University of Michigan economic forecaster Daniil Manaenkov in a news release.

President Donald Trump rolled out worldwide tariffs, taxes on imported goods, earlier this year arguing they will boost American manufacturing and drive economic growth.

Some of those have gone into effect, like a 10% baseline tariff on most countries, while others have been pared back. The steepest levies on China were recently slashed for 90 days pending negotiations.

But Michigan and the rest of the country remain vulnerable to “tariff whiplash strain,” the UM economists wrote, as changing policies present “a range of possible outcomes and an unclear timeline for resolution.”

“The mercurial nature of recent trade policy announcements likely fueled growing pessimism about the economic outlook and price pressures, as indicated by numerous surveys,” the forecast said. “However, it remains to be seen how much of that forward-looking trepidation will filter into the real economy.”

Related: Walmart says it will raise prices thanks to Trump’s tariffs

Broadly, this hasn’t had an impact yet, but economists expect it will hit Americans’ wallets soon.

The UM forecast predicts tariffs will increase the price of goods by 3% by 2027 as they start to filter through economy. But economists say it’s unlikely inflation will hit recent highs, like when it peaked at 9% in July 2022.

The current tariffs will also likely deal a blow to the auto industry.

The levies are estimated to lead to an average $6,200 increase for both domestic and imported vehicles, according to the economic forecast.

As a result, U.S. passenger vehicle sales are expected to drop from 16.4 million in the first quarter of this year to 14.8 million in the third quarter. Automakers should be able to adapt, the economists said, and recover to 15.3 million sales by 2027.

Related: Whitmer: Trump’s tariffs will ‘cripple our economy,’ increase prices for Michiganders

For Detroit’s Big Three automakers — Ford, General Motors and Stellantis — sales are expected to tick down 400,000 units by 2027.

With auto manufacturing a key pillar to Michigan’s economy, this could lead to job losses.

The economists estimate steep tariffs on the auto sector, including a 25% levy on steel and aluminum imports, could cost Michigan 13,000 jobs over the next several years. But they emphasized these numbers remain “a moving target” as tariff negotiations are ongoing.

Michigan’s labor market has also lost steam with unemployment hitting 5.5% last month compared to 4.2% nationally. Economists say the state now faces a “dual challenge” with the uncertainty of tariffs and weak national job growth.

The forecast could turn out to be “too pessimistic,” the economists wrote, projecting Michigan’s economy will grow at a moderate pace over the next three years. But “the risk of a downturn is substantially higher than we would prefer,” the report said.