Economic forecasts are difficult enough under normal circumstances. Global events, natural disasters, pandemics, and consumer whims can turn the most scientifically based prediction on its head at a moment’s notice.
But President Donald Trump’s unconventional tariff policies are making corporate planners’ and economists’ jobs even more challenging. Although economic prognosticators are cautiously optimistic about the fortunes of the national, state, and local economies, every forecast begins with the words “depending on what happens with tariffs.”
“Clearly the Trump administration strategy is different and a dramatic economic change from the coalition that was built around free trade principles starting from the Eisenhower administration,” says Sandy K. Baruah, president and CEO of the Detroit Regional Chamber. “We don’t know what the results of that are going to be, but certainly the short- and medium-term effects for manufacturing states like Michigan are clearly going to be challenged.”
He adds that the tariff policy has been uncertain. “The tariffs come on and off. They get increased. They get decreased. There are tentative deals that are announced, but details aren’t known. It’s a very dynamic strategy that makes it very hard for capital-intensive industries like manufacturing to plan and to invest.
“It’s also very hard to make cap ex decisions like building factories and moving production lines if you don’t know what the rules of the road are going to be,” he adds.
Shooshan Danagoulian, associate professor of economics at Wayne State University in Detroit, says she expects “cautious growth” in the next year, but the uncertainty about tariffs could cause a slowdown. “The economy in the United States is facing quite a bit of uncertainty for next year,” Danagoulian says. “There’s a lot of business uncertainty around tariff policy, as well as federal contracts and federal regulations around contracts. A lot of businesses are pausing major investments and certainly pausing hiring. In the employment market, there’s a lot of wait-and-see happening.
“If or when tariffs become permanent, businesses will be able to decide whether to pass the increased costs on to consumers or to absorb the costs and decrease investment and employment.”
In August, The Conference Board predicted that higher tariffs are set to weigh on real GDP growth in the second half of 2025 and into 2026, as consumers are expected to bear the brunt of higher prices. “Businesses will navigate the tariff landscape with more clarity than was the case earlier this year,” the prediction continued. “Even though tariffs could eat into their profit margins, accelerated depreciation, one of the key provisions in the latest fiscal legislation, could incentivize business investment in the coming months.” The Conference Board estimates the bulk of tariffs will impact Q4 and early 2026.
Foreign trade remains the sector with the biggest question marks surrounding the economy, according to Michael Wolf of the Deloitte Global Economics Research Center. “Tariff details are being changed frequently,” Wolf recently wrote. “Two federal courts ruled against President Trump’s use of the International Emergency Economic Powers Act (IEEPA) to impose tariffs on trading partners. On May 28, the Court of International Trade invalidated the tariffs on a nationwide basis, while a separate court invalidated the application of tariffs more narrowly on the two plaintiffs in the lawsuit.
“Both rulings have been temporarily stayed and the cases are in the process of appeal, which has made the future path of tariffs and trade policy even more uncertain. Further, the rulings do not apply to tariffs imposed under other statutes.”
The Trump administration insists the increased revenue from the tariffs will lead to all sorts of positive outcomes — including paying down the national debt, for one. Official U.S. data shows that in June 2025, tariff revenues were $28 billion — triple the monthly revenue seen in 2024. The U.S. Treasury reported August tariff receipts of $29.5 billion after being at $27.7 billion in July. The Congressional Budget Office estimated in June that the increase in tariff revenue, based on the new U.S. tariffs imposed between January and May 2025, would reduce cumulative U.S. government borrowing costs over the next 10 years by $2.5 trillion.
Officials also say tariffs will encourage foreign companies to manufacture more in the U.S., incentivize U.S. companies to reshore manufacturing, and ultimately grow the economy.
Apart from tariffs, at the national level, inflation and a soft labor market caused the Federal Reserve Board to lower interest rates .25 percent, to 4.25 percent, in September after holding firm at 4.5 percent to fight inflation. The Fed decided to cut the rate, under pressure from the White House to cut the interest rate even more. Its hesitancy and the .25 percent cut came with the Consumer Price Index nudging to 2.9 percent in August, above the Fed’s 2 percent target. It also came as the labor market began showing signs of weakness, taking back almost 1 million jobs from previous reports.
“Our tools can’t do two things at once,” Federal Reserve Chairman Jerome Powell said at the time. “What we do is we ask is how far is each (inflation and employment) from the goal, and how long is it expected to get to the goal?” Those questions should be answered when the Fed makes the two additional interest rate cuts it signaled at the last meeting.
According to the Michigan Department of Treasury’s latest report, the U.S. can expect modest economic growth throughout the next three years. Real, or inflation-adjusted, Gross Domestic Product (GDP) is forecast to rise 1.1 percent in 2025, 1.3 percent in 2026, and 2.1 percent in 2027. U.S. wage and employment figures are set to increase over the forecast horizon, rising by 1 percent in 2025, .3 percent in 2026, and .8 percent in 2027. The U.S. unemployment rate is forecast to increase to 4.4 percent in 2025, 4.9 percent in 2026, and 4.8 percent in 2027, due in part to expected increases in the national labor force.
Housing starts, meanwhile, are expected to grow by .6 percent in 2025 and increase by 2.7 percent in both 2026 and 2027. With tariffs affecting prices, light vehicle sales are forecast to decline slightly to 15.7 million in 2025 and 15.5 million in 2026, but then they are expected to increase to 15.7 million in 2027.
The pace of inflationary growth, according to the Michigan Treasury, is forecast to increase, and then fall back to its 2024 level. The Consumer Price Index, which rose by 2.9 percent in 2024, is predicted to rise by 2.9 percent in 2025, advance by 3.5 percent in 2026, then increase by 3 percent in 2027.
New data released in September by the U.S. Bureau of Labor Statistics confirms that the Trump administration’s across-the-board tariffs are increasing inflation. The report shows inflation ticking up in August, with the Consumer Price Index rising by .4 percent month-over-month and 2.9 percent year-over-year. Core inflation — which strips out food and energy — rose .3 percent in August and 3.1 percent annually, matching July’s pace. Rising costs for shelter, food, and gasoline all contributed to the increase.
Since April, Trump has imposed across-the-board tariffs of 10 percent to 50 percent on nearly all imports, with higher rates for dozens of countries and industries. The average tariff rate now tops 18.6 percent, the highest since 1933. While some businesses initially absorbed the cost, companies are starting to pass the increases on to consumers, according to the Bureau of Labor Statistics.
Tariffs’ Effects on Michigan
What are the effects of tariffs and interest rate cuts on businesses in Michigan? Tariffs are expected to hurt the auto industry, while the Fed’s interest rate cuts could benefit both automakers, who rely on loans to move their products, and the mortgage industry, which has a heavy presence in southeast Michigan with Rocket in Detroit and United Wholesale Mortgage in Pontiac.
“When you think about Michigan’s industrial mix, you have automotive and mortgage that are sensitive to interest rates,” says Gabriel Ehrlich, an economist at the University of Michigan in Ann Arbor. “We do expect the rates to keep coming down and that will help these industries. We expect slow economic growth and job growth to continue at a moderate pace. The uncertainty about tariffs makes it really hard to plan, and that has effects.”
Wayne State’s Danagoulian says, “Michigan is particularly vulnerable to tariffs because of the auto industry’s production process. Even American cars are made with parts that are often made outside the United States. Any tariffs that are implemented will be hitting these industries. And Michigan businesses, being so close to Canada, are impacted by the trade war between those countries.”
She notes that some small businesses may have to file bankruptcy to restructure their debts because of contracts that are no longer viable, depending on how the tariffs shake out.
Despite the turmoil, the Michigan Treasury says it expects employment in the state to grow .6 percent by the end of 2025 and increase by .4 percent in 2026 and 2027. It expects the wages and salaries of Michiganders to grow 3 percent in 2025, 3.3 percent in 2026, and 3.4 percent in 2027.
In May, the Michigan House Fiscal Agency projected a moderately weaker employment picture than the national economy with slower employment growth, averaging about .4 percent annually, and the unemployment will peak at 5.9 percent in 2026 before falling to 5.7 percent in 2027.
The same report forecasts Michigan wage and salary employment to increase by .4 percent in 2025, .3 percent in 2026, and .4 percent in calendar year 2027. Michigan’s unemployment rate is expected to increase to 5.6 percent this year and 5.9 percent in 2026, before decreasing to 5.7 percent in 2027.
Ehrlich says U-M research projects that the state’s economy will continue to grow moderately over the next two years. “We expect tariffs to reduce employment in Michigan’s auto industry by a little over 5,000 jobs,” Ehrlich says, “but the reason we’re forecasting growth in Michigan is because of the growth in noncyclical industries like education, health, government, and leisure and hospitality.”
Michigan, however, faces employment headwinds more daunting than other states. Its unemployment rate increased faster than the national average over the past year, while many rural counties in the state are experiencing deepening economic distress, according to a Labor Day report released by the Michigan League for Public Policy. The report, “A Snapshot of Michigan’s Workforce,” determined that Michigan had the fourth-highest unemployment rate in the nation, at 5.3 percent as of June 2025, compared to the national average of 4.1 percent.
Meanwhile, more than half of Michigan’s counties — 54 out of 83 — reported unemployment rates of 6 percent or higher, with rural communities hit the hardest. The report also found that workers’ real earnings are being eroded as wage growth in Michigan is being outpaced by rising costs, with 27 percent of Michiganders reported to be employed, but under the classification of “asset-limited and income-constrained.”
In 2024, only two major Michigan industries surpassed the job growth rates of their national sector counterparts, according to the Michigan Center for Data and Analytics: Financial Activities and Construction. The government sector in Michigan and the U.S. noted the same change rate between 2023 and 2024 (2.5 percent), while information technology saw the greatest reduction in average payroll employment (-2.6 and -2.1 percent, respectively) across the state and nation.
One area of Michigan’s economy that experts are pointing to is Detroit’s modest increase in population. “What cuts through everything is population growth,” says Sam Huszczo, founder and chief investment officer at SGH Wealth Management in Lathrup Village. “Without population growth it’s difficult for an economy to kick into gear. With 1.1 percent population growth, Detroit ranks better than the state and nation.
“The population growth has been encouraging. Also encouraging, payrolls are up modestly. All of that is encouraging and a bedrock to continue the growth. I anticipate more good things to happen from that standpoint.”
Like U-M’s Ehrlich, Huszczo looks for growth in areas apart from the auto industry. “We’re still way too dependent on the auto industry,” Huszczo says. “In Michigan, the biggest positive GDP percentage changes were in construction, information technology, and real estate. The agriculture segment is down and has taken the biggest step backward as a result of the tariff situation.”
Unlike other states, Michigan “is actually dependent on international immigration and, with Trump’s policies, that’s kind of stalling,” Huszczo adds. “Because of the business dynamics, which don’t compare favorably to other states, we might not be able to rely on a large amount of international immigration, which might make it a tougher path for Michigan.”
Ehrlich says, “There’s no question that the population growth we’ve seen is a positive sign. As we look forward, we see immigration slowing down — and what does that mean for the positive trends? There are real questions as to what that’s going to look like.”
To combat the negative outlook and spark positive changes, the state of Michigan has been investing in talent retention and population growth initiatives, which officials say are paying off. “We’re cognizant that there’s economic uncertainty, but the good thing for Michigan is there’s a good wind at our back because of the strategic investments that we’ve made that are really starting to pay off (talent retention, housing, child care, community college scholarships, and support for entrepreneurship and innovation, for example),” says Hilary Doe, chief growth officer for the state of Michigan.
“Detroit’s population grew, but so did Flint’s. Most importantly, (included) in those trends are young adults, (and that) number is growing faster than in 45 other states. It implies that things are going in the right direction.”
Another plus in Michigan’s favor is its emergence as a leader in forward-looking technologies to boost economic opportunities. “Michigan has been a leader in energy jobs, with one of the fastest energy sectors in the country and some of those in clean energy manufacturing,” Doe says. “That’s a positive sign of our economic diversification, along with the fast-growing entrepreneurship and innovation ecosystems. We also have a fast-growing defense and aviation industry.”
An area of concern to the auto industry, and in turn the southeast Michigan economy, is the Trump administration’s de-emphasis on clean energy and, in particular, electric cars.
“Electrification of vehicles has become political, which is unfortunate,” says the Detroit Regional Chamber’s Baruah. “Electrified vehicles certainly aren’t for everyone today. They’re right for some people and very wrong for other people. It’s very clear that the mobile industrialized world is moving to a more electrified vehicle fleet.
“The fact that our industries, our OEMs, our Tier 1s and our Tier 2s have invested so heavily in electrification and now have had the rug pulled out from under them means they’ve wasted a lot of their hard-earned shareholder money in a strategy that the U.S. government will no longer support and/or we’re about to cede 25-35 percent of the global vehicle market to other countries, namely China, that have a leadership position in electrification.”
Detroit’s Economic Future
U.S. economic and immigration policies and their influence on Michigan naturally have a trickle-down effect to southeast Michigan and the city of Detroit. Despite the headwinds, U-M economists say Detroit is expected to see an increase in jobs, wages, and resident employment in the next five years.
Among the highlights of the U-M August report:
• Wage growth at jobs located in the city will average 3.2 percent annually from 2025 through 2030, faster than the state of Michigan overall. After adjusting for local inflation, Detroit residents’ average real wages are expected to climb to 4.9 percent higher in 2030 than in 2019. Although that may seem modest, it outpaces the growth in average real wages at Michigan and Detroit establishments.
• Detroit is expected to add an average of 1,500 payroll jobs per year during the forecast period, an annual growth rate of .6 percent. Economists forecast resident employment to rise by an average of .4 percent annually. The slightly slower average growth of resident employment reflects its stronger recovery since the pandemic, which leaves less room for catch-up growth.
• Detroit’s unemployment rate is expected to continue rising through the first half of 2026, reaching 10.2 percent in the second quarter. Michigan’s unemployment rate is projected to peak at 6 percent in the same period. The forecast calls for the city and state unemployment rates to decline in the following years, as lower interest rates work their way through the economy. By 2030, Detroit’s jobless rate should decline to 8.9 percent, while Michigan’s rate falls to 5.6 percent.
• The number of jobs at Detroit establishments will recover to the pre-pandemic level by the second quarter of 2026, and researchers project it to rise to 3.1 percent above that level by the end of 2030. Resident employment is projected to surpass its pre-pandemic level by 4.5 percent at the end of 2030 and exceed its 2023 peak by 1.4 percent.
• Higher tariffs will weigh on employment in Michigan’s transportation equipment manufacturing sector over the next several years. Subdued expectations for statewide growth in the auto sector feed into the forecast for Detroit’s economy. Industries expected to see job gains over the forecast years include finance, leisure and hospitality, and public administration.
“We believe Detroit’s firmer footing augurs well for its economic performance over the next several years,” the economists, including Ehrlich, say in their report, “but the outlook is clouded by a high degree of uncertainty over the course of economic policy.”
Huszczo, of SGH Wealth Management, also is bullish on Detroit’s economic future yet cautions against “irrational exuberence.” “Detroit is on a growth path, but it’s more vulnerable to unexpected events than an average U.S. city,” he says. “What we learned from the COVID-19 experience is that even though Detroit is on a growth path, any derailment from that path results in the economy being hit hard. Detroit doesn’t have the kind of wealth and assets to easily weather that storm.”
Ultimately, “the way the auto industry goes might be putting a damper on Detroit, as well,” he adds.
The uncertainties caused by national policy could at least be holding Detroit’s growth back, if not hurting it directly, according to Maureen Donohue Krauss, president and CEO of the Detroit Regional Partnership.
“There’s pent-up demand from companies that have been waiting for more certainty to announce new locations or start to build a facility,” Krauss says. “The pipeline is still strong, but eventually these companies have to pull the trigger on projects. Still, location choices are being broadened to other countries (like Canada) because of uncertainties about things like tariffs.”
Planning also is made more difficult by uncertain national policy.
“Companies are used to doing two- or three-year strategic plans,” Krauss says. “They say they can’t do that anymore. It impacts financing, staffing allocations, and all of the basics that companies have to put together to charge ahead with taking on new projects or building new space.”
In general, economists tend to be cautiously optimistic about the economic prospects of the U.S., Michigan, and metro Detroit. They predict moderate growth in GDP and employment, with inflation having less of a grip on consumer budgets. Changing tariffs and immigration are holding the economy back.
“When you have a ton of uncertainty, predictions become a lot of junk science,” Huszczo says. “The certainty that comes with permanent tax law fighting against the uncertainty of tariffs is a situation we’re all going to (have to wait and) see who wins. I’m excited about Detroit, mildly excited about the United States, and neutral on the state of Michigan.”
Baruah says, “The best-case scenario is that in the next three months or so, the United States is able to (sign) solid agreements with our key trading partners — the European Union, Mexico, Canada, and Japan — especially around manufacturing, automotive, and mobility. If we’re able to do those things, and have a concerted Western industrialized world strategy with China between now and the end of the year, 2026 could be a fabulous year.
“If we don’t do those things, I think 2026 will be a tough year for Michigan.”
