Viewpoints: August 2025

The trade deficit narrowed slightly in June, as exports fell 0.5% from May and imports fell 3.7%, clearly reflecting the negative impact of President Trump's on-again, off-again tariff policies and related uncertainties.

It was the third consecutive month of declining imports following the bulge in Q1 when U.S. businesses ramped up imports in anticipation of tariffs. Chart 1, which shows the bulge in imports earlier this year and its recent unwinding, is striking. The chart also shows the flattening of imports in 2018-2019 following a healthy rise in prior years before Trump imposed tariffs in his first term. June exports fell for the second consecutive month.

After a turbulent first half of the year, summer has brought calmer conditions for the Trump administration, the global economy, and financial markets. Major US trading partners have signed or are negotiating new trade agreements. While we previously noted that finalising these deals would take time, the easing of trade tensions alone has been enough to draw businesses, consumers, and investors back into action.

The view that the second half of 2025 will outperform the first remains intact, supported by solid business cycle fundamentals.

Business cycle indicator assessment

Figure 1 summarises the latest business cycle assessments. Green signals positive conditions, blue neutral, and maroon negative, with arrows showing momentum.

Since the last review: • Unchanged: US, China, India, Korea, Indonesia • Improved: Europe, Malaysia, Philippines • Weakened: Japan, Taiwan, Thailand

Europe’s uptick stems from an investment cycle rebound ahead of the tariff war. In Malaysia and the Philippines, broad money growth has turned positive, signalling stronger activity ahead without inflation risks.

Japan’s deterioration reflects an unusually low two-year real lending rate (-2.8%), which points to inflation risks but is tempered by slowing broad money growth and a weakening credit cycle. Inflation is moderating—3.2% YoY in June vs. 4% in January—despite public dissatisfaction over living costs.

Taiwan shows weakening broad money growth and credit, suggesting slowing domestic momentum. Thailand fares worst: the investment cycle is in downswing, leaving three of its five business cycle indicators negative.

Conclusion: Shifts in scores are not large enough to warrant changes to 2025 investment recommendations.

Kevin, in your role as Director of the National Economic Council, you carry the significant responsibility of advising the president on economic and fiscal policy matters, while also acting as an "honest broker." I was genuinely shocked and disappointed to hear that you argued the dismissal of the BLS Commissioner was an effort to "restore" trust in the BLS. This is entirely false. In reality, the removal of the BLS Commissioner sends the opposite message, indicating that the administration will attempt to manipulate the numbers for political gain.

As you mentioned, the jobs data has indeed been "awful" for a while. But why is this happening? The statistical agencies, especially the BLS, have been lacking sufficient funding from Congress to produce the highest quality data for policymakers, businesses, individuals, and investors. Instead of seeking additional funding, the current administration has dismissed its leader, claiming this will lead to better statistics, which many now distrust.

In the most recent employment figures, companies of all sizes have communicated to you and others in the administration that the erratic tariff policy has generated such confusion and uncertainty that managing a business on a day-to-day or weekly basis has become nearly impossible.

Janet Norwood, the esteemed BLS Commissioner, remarked that "the professionals who compile the nation's statistics must be courageous enough to insist that their work remains free of political interference." The dismissal of the BLS Commissioner suggests that this is no longer feasible.

Several presidents have challenged governmental statistical agencies over the years, but these disputes typically involved the reporting and interpretation of economic data. Today, President Trump has crossed a "sacred red line" by firing the Bureau of Labor Statistics Commissioner, claiming the individual was "manipulating the jobs data." Employees of government statistical agencies operate with the highest integrity.

The fact that Treasury Secretary Bessent and National Economic Council Chair Hassett did not prevent this firing is an embarrassment to everyone working in any government statistical agency. Bessent and Hassett should resign immediately, as they can never be trusted, and their failure to stop the firing of the BLS commissioner should disqualify them from any other position in the federal government, especially at the Federal Reserve.

Those employed in the economic, business, and financial sectors must ensure that professionals responsible for collecting our national statistics remain independent of political influence. The best way to begin is by dismissing those currently in charge who failed to prevent the firing of the BLS Commissioner.

The Trump administration often highlights the revenue from tariffs, but hides the decrease in corporate income tax due to increased tariff-related expenses. By June 2025, covering three quarters of the fiscal year, corporate tax revenues have dropped by over $30 billion compared to the previous year.

Therefore, while the government might be earning extra revenue from tariffs, it is US companies that are covering the costs, resulting in them paying less in taxes.