The chaotic trade policies initiated by U.S. President Donald Trump have ushered in a climate of uncertainty, posing risks to the U.S. economy.
In his second inaugural address in January, Trump expressed his ambition to fundamentally restructure the United States’ position in the global economy.
This was followed by the introduction of the Liberation Day tariffs in April, marking the start of a dramatic overhaul of longstanding international trade policies.
However, in the weeks that followed, Washington began to reverse certain tariffs and engage in negotiations with major trading partners, including China.
Amid sweeping changes in immigration policy and considerations for restricting foreign direct investment, U.S. Treasury Secretary Scott Bessent aptly described the administration’s approach as “strategic uncertainty.”
The implications of this so-called strategic uncertainty are troubling and, if unaddressed, the United States may experience economic consequences akin to those faced by the United Kingdom in the aftermath of Brexit.
In June 2016, the United Kingdom voted to leave the European Union after nearly half a century of membership, thereby disrupting its trade, immigration, and investment agreements within the bloc.
The aftermath of Brexit has unfolded as a prolonged saga rather than a singular event, with the economic policy changes required taking years to negotiate and implement.
Consequently, policy uncertainty escalated significantly, adversely impacting British businesses who faced a paradox: despite trade policies remaining largely unchanged post-Brexit, the economic reality was far from stable.
For five years following the Brexit vote, both British exports and imports remained relatively constant, only beginning to decline significantly after the implementation of higher trade barriers with the EU in 2021.
Despite this initial stability in trade volume, the British economy endured significant strain during those years.
The uncertainty that followed the Brexit vote hampered business investment, leading to stagnant economic growth in labor productivity and real incomes in the UK.
From 2016 onward, investments in the UK slowed, causing wage growth to stagnate, with inflation-adjusted average incomes increasing a mere four percent over that period.
At this rate, it was estimated that it would take over a century for average incomes to double—an alarming projection that underscored the economic toll of the prolonged uncertainty.
In January 2018, Sir Ivan Rogers, former British ambassador to the EU, warned in a speech that “Brexit is a process, not an event.”
The complexities of negotiating new trade agreements soon became evident, particularly with regard to the substantial portion of British exports and imports that relied on existing EU agreements.
As political parties in the UK split on approaches to Brexit, businesses quickly became wary of the unpredictable economic landscape.
‘Hard’ Brexiteers sought to redefine trade relations aggressively, while ‘soft’ Brexiteers aimed to maintain as much continuity as possible.
However, between parliamentary debates and judicial hurdles surrounding Brexit, concrete trade policy initiatives largely stagnated for almost five years.
It was not until January 2020 that the UK officially left the EU, with a new trade agreement only coming into effect in May 2021.
Since then, the UK has yet to secure a comprehensive trade deal with any significant non-EU nations, instead defaulting to rolling over existing EU agreements.
The uncertainty surrounding Brexit, characterized by years of negotiations and adjustments, has unequivocally stunted business investment within the UK.
Research from Ben Bernanke in 1983 demonstrated that heightened uncertainty causes companies to delay investments, especially those with significant sunk costs.
The less predictable the market—sparked in this case by an unclear policy environment—the less likely companies are to commit further capital.
This scenario unfolded dramatically for British firms following the Brexit vote, where business investment saw minimal changes from 2016 to 2024.
In contrast, U.S. business investment surged during the same timeframe, showcasing the negative ramifications of prolonged uncertainty on the UK’s economic health.
Surveys conducted by the Bank of England consistently noted British firms citing Brexit-related uncertainty as a primary concern, exacerbating fears among investors.
This stagnation in business investment resulted in a corresponding decline in real incomes for British citizens, emphasizing the dire consequences of such uncertainty.
The impact of the U.S. administration’s chaotic trade policies appears to be mirroring the initial fallout experienced in the UK following Brexit.
Notably, the Economic Policy Uncertainty Index in the U.S. surged to unprecedented levels, surpassing the volatility seen during both the COVID-19 pandemic and the financial crisis of 2007-2008.
Many leading U.S. companies, including Ford and UPS, have stopped providing earnings forecasts due to a lack of clarity regarding their future business environment.
Surveys reveal a significant drop in expected capital investments among American businesses, echoing the patterns observed in the UK.
The Federal Reserve’s Beige Book expressed concerns regarding uncertainty, with the term explicitly mentioned 80 times in its latest report.
Interestingly, while initial 2025 economic statistics for the U.S. saw a surge in capital investment, driven by preemptive importation of goods before tariff hikes, expectations for future investments have since fallen short.
The Business Roundtable’s CEO Economic Outlook Survey for early 2025 indicated that over half of participating companies anticipated flat or declining capital investment in the coming months.
Activity in merger and acquisition transactions has also taken a notable downturn, with an observed 19 percent drop compared to the previous quarter.
The hiring rate has similarly slowed, with only 18 percent of small businesses planning new capital expenditures—a figure reflective of the uncertainties currently at play.
This push for investments is particularly critical, as multinationals lead the charge in the U.S., accounting for a substantial percentage of total capital investment and research and development.
While there are some favorable trends for the U.S.—notably investments in generative artificial intelligence—the overarching climate remains fraught with uncertainty.
Despite the economic momentum witnessed before Trump’s reelection, which was partly driven by advancements in AI, the erratic nature of trade policy continues to cloud the business landscape.
The pattern of uncertainty that echoed through the UK’s post-Brexit economy serves as a cautionary tale for U.S. policymakers.
As witnessed in recent surveys, inflation expectations among U.S. consumers have shot up dramatically, signaling rising economic anxiety within the country.
Ultimately, the United States may find itself facing a similar trajectory of stagnation in productivity and real incomes as the UK did, should uncertainty persist unabated.
The British experience highlights the critical importance of stable policy environments in fostering business investment and economic growth, a lesson that must not be overlooked in the current U.S. context.
image source from：https://www.foreignaffairs.com/united-states/americas-brexit-phase
