The U.S. and world economies are standing precariously at a crossroads, marked by both significant potential and risk. Consumer spending and technological advancements have been drivers for growth, but persistent inflation, geopolitical tensions, and drastic trade policy shifts have created an economic landscape fraught with uncertainty. And there’s nothing investors abhor more than uncertainty.
For some business owners, this threatens a perfect storm that demands agility, foresight, and strategic planning to weather the months ahead. Our feature story in this edition of SmartTips covers contingency strategies owners can keep locked and loaded to address some of the more likely scenarios that may play out in the months ahead.
“For some business owners, it’s a perfect storm.”
The Transition From 2024
The U.S. economy was remarkably robust in 2024, with both GDP and personal consumption expenditures showing solid growth, driven by consumer, business, and government spending. Consumer confidence, reinforced by a tight labor market and rising real incomes, stimulated spending on durable goods and services, with personal consumption expenditures rising. While inflation cooled to 2.8% in February 2025, it was still significantly above the Federal Reserve’s 2% target. This added to the tensions created by the Trump administration’s threat of tariffs and potential impacts on global supply chains.
Q2 Quandary
The transition into the second quarter ushered in economic uncertainty on multiple fronts and created a volatile environment for businesses. Let’s start with the elephants in the room:
- Trade policy and tariffs: On April 2, President Trump initiated sweeping tariffs that far exceeded the scope of what many economists had predicted. The U.S. tariffs threaten to raise costs and disrupt supply chains for U.S. businesses that rely on imported goods for resale or as manufacturing inputs. Retaliatory measures have already escalated the situation into a broader trade war that could impact growth prospects by pushing inflation higher.
- Monetary policy: The Federal Reserve’s cautious approach, holding rates at 4.25%–4.50% in March 2025, reflects uncertainty over inflation’s trajectory. A premature pivot to easing could reignite price pressures, while prolonged high rates might curb investment and consumer spending. The Fed meets again on May 7.
- Geopolitical risks: Ongoing conflicts and strategic rivalries, particularly between the U.S. and China, heighten risks of supply chain disruptions and commodity price volatility.
- Broad policy shifts: In the U.S., proposed changes in immigration, deregulation, and tax policy introduce unpredictability. Stricter immigration policies may tighten labor markets, while tax cuts might boost short-term growth but strain fiscal sustainability.
- Consumer sentiment: Despite solid fundamentals, U.S. consumer sentiment has soured, with surveys indicating growing pessimism about economic prospects. The University of Michigan Consumer Sentiment Index fell 11% between March and April to 50.8, the second-lowest reading on record. A sharp pullback in spending could trigger a demand-led economic slowdown, stoking fears of a recession.
“To navigate this uncertainty, business owners must explore proactive strategies.”
Strategies for Business Success
To navigate this uncertainty, business owners must explore proactive strategies that enhance resilience and capitalize on opportunities. Here are some broad, generalized strategies you might consider to position your business for what could be difficult months ahead:
1. Diversify Your Supply Chains
Tariffs and geopolitical risks underscore the need for diversified supply chains. Businesses should identify alternative suppliers in regions less exposed to trade disruptions. This is easier said than done, however, because of the whiplash effect of on-again/off-again tariffs and global markets being flooded with businesses seeking the same relief. Many businesses began the process of diversifying their supply chains months ago and, in many cases, are still trying to find alternative sources for critical imported goods.
2. Strengthen Financial Resilience
With inflation risks and potential rate hikes, businesses should optimize cash flow and reduce debt exposure. Refinancing high-interest loans, securing fixed-rate financing, and building cash reserves provide flexibility to weather economic shocks.
Businesses seeking investment avenues may discover new opportunities in the wake of stock market declines following the Trump tariff announcements. We’re now arguably approaching bear market territory, defined as a sustained downturn with stock indexes retreating to 20% below previous peaks. Bear markets can last several years and take time to fully recover; however, most recoveries begin within a year.
Historically, sharp market corrections and bear markets have often presented attractive entry points for long-term investors, and investing during market turmoil has historically yielded above-average returns. However, the word of the day is “uncertainty,” and the market downturn could deepen, especially if economic contraction continues or trade tensions escalate.
3. Manage Costs and Expectations
Depending on your business model and supply chain, you could be left with the sole option of absorbing the financial impact of new tariffs. Offsetting this impact may require measures to reduce and manage costs, such as:
- Streamlining operations: This may include new marketing strategies, such as paring down or changing product offerings. Adopting technological advances such as AI and automation may improve inventory management, defer the need for new hires, or, in extreme cases, facilitate right-sizing. Some businesses may even explore consolidation through mergers or acquisitions as a strategy to optimize operations, supply chains, and financing.
- Renegotiating vendor contracts: Some suppliers may be willing to retool contracts to help you weather the storm. Keep in mind, however, that some vendors may already be operating on thin margins, and some may be besieged with requests to make concessions. Patience and persistence are key to finding a win-win solution.
- Pausing or redrawing growth and expansion plans: Uncertainty about consumer sentiment, sales, and revenue may require deferring growth plans until the market environment stabilizes.
4. Focus on Customer Retention
With consumer sentiment wavering, retaining existing customers is critical. Personalized marketing, loyalty programs, and flexible payment options can maintain demand. Businesses should also monitor sentiment closely. Consider using surveys or social media listening to anticipate shifts in customer behavior and preemptively address any negative impacts.
5. Explore Emerging Markets
Businesses may succeed in tapping into new markets by forming partnerships or strategic alliances. Working with new partners may open opportunities to create added value for consumers, tailor products to various market segments, and offset lagging growth in other areas of your business.
Build a Playbook for Your Business
There’s no one-size-fits-all solution for the market environment now emerging, and no single strategy that can address the possible impacts if the Trump administration pivots to new policies. Business leaders need to stay abreast of developments and carefully analyze the impact on their operations end-to-end. Consider developing the broad outlines of contingency strategies built around a range of key factors that would impact your business. Outline best-case, intermediate, and worst-case scenarios and what responses you should prepare for in each case.
Rough Road Ahead?
The economic outlook for 2025 is one of cautious optimism tempered by uncertainty. The U.S. economy’s resilience offers a solid foundation, but the economic framework has never been more fluid and unpredictable. Business owners can seize the moment by diversifying supply chains, leveraging technology, and prioritizing financial resilience.
By preparing contingencies for moderate, optimistic, and pessimistic scenarios, businesses can not only weather potential storms but also emerge stronger. In an interconnected world, adaptability and strategic foresight are the keys to turning uncertainty into opportunity. As the second half of 2025 unfolds, those who plan proactively will be best positioned to thrive, no matter what the economic winds bring.
