By Teresa Rivas

Stocks are rising again after the Memorial Day holiday, reclaiming some of last week's trade-related losses. But amid a better-than-feared earnings season and stock gains, investors appear to be forgetting that the full impact of even reduced tariffs has yet to be felt.

Even though things have seemed to calm down, it's time to batten down the hatches, some analysts warn.

U.S.-China container traffic might provide a preview of what's to come. Even though the two countries struck an initial trade truce on May 12, pausing tariffs for 90 days, this traffic hasn't bounced back, Apollo Global Management Chief Economist Torsten Slok notes.

"This raises the question: Are 30% tariffs on China still too high? Or are US companies simply waiting to see if tariffs will drop further before ramping up shipments?" he writes.

Data for laden vessel tonnage departures from China to the U.S. -- which track the total volume of cargo carried by containers on a rolling 15-day total -- tell the story. In mid-April, when companies were trying to import as much as possible ahead of expected higher tariffs, the number of vessels hit 76, with tonnage at more than 580,000. The most recent reading tallied just 38 ships, with tonnage well below 300,000.

In short, companies appear to be feeling far from confident. That's completely understandable, notes Citi Global Chief Economist Nathan Sheets, given that both policy and economic uncertainty is now elevated.

"Tariffs under the Trump Administration are slated to be the most aggressive in decades. The lack of clear precedents makes it difficult to assess how a given set of tariffs will affect global performance."

With high-profile deals with the U.K. and China in place, Sheets predicts a flurry of agreements with other countries will follow in the coming weeks and months. He says he U.S. will likely settle around 10% so-called "reciprocal" tariffs and 25% sectoral tariffs globally -- with the potential for additional penalties on some Chinese goods, like the recent 20% fentanyl tariffs. But that still leaves much higher levies in place than there were just a few months ago -- and a lasting worldwide effect.

"U.S. tariff policies [will] continue to leave an imprint on our forecast for the global economy," Sheets writes. "We see global growth this year at 2.3%, down from 2.8% last year. The developed market economies are hit especially hard, with growth falling to just above 1%."

In the next few months, the effects of tariffs will more fully emerge. Demand could face a "double blow," he writes. That's because higher costs associated with tariffs will reduce purchasing power -- right at the same time the consumers and companies that rushed to order products ahead of tariffs pull back.

There have been hopes that some of that could be offset by the tax bill. After all, tax cuts were one reason markets were cheering the election results in November -- conveniently ignoring tariff threats.

However, even that looks problematic now. Higher-growth-spurring tax cuts would add even more to the national debt when more investors than ever are worried about that figure. The Moody's U.S. downgrade earlier this month means no credit agency still gives U.S. debt a perfect score, and U.S. Treasuries sold off last week on worries about the government's fiscal outlook.

Sheets estimates that the tax bill, as it stands in the House of Representatives, would "result in U.S. deficits remaining high over the coming decade, averaging 6% of GDP or slightly higher."

That might seem at odds with the S&P 500's more than 6% gain this month, putting it around breakeven for 2025 as a whole. But despite all the trade worries, the U.S. economy has remained resilient thus far. Sheets notes it could keep surprising to the upside.

"Even so, we are not inclined to upgrade the outlook more aggressively, since we are likely still in the 'calm before the storm,'" Sheets concludes. "We continue to expect growth in the second half of the year to slow appreciably, and we remain concerned about potential downside risks."

Summer may have officially started, but sunny skies aren't a guarantee.

Write to Teresa Rivas at teresa.rivas@barrons.com

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May 27, 2025 15:09 ET (19:09 GMT)

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