The Economic Cost of Chaos Is Real and Rising

Even by the standards of this White House, last week was a lot. On Monday, President Donald Trump announced 50% tariffs on Canadian goods via a Depression-era statute that has never been used (and might be defunct). On Tuesday, he set a 100% tariff on generic drugs but delayed it until 2028. His team waited until Thursday evening to announce legally-dubious “forced labor” tariffs that would replace legally-dubious “balance-of-payments” tariffs that were set to expire at midnight on Friday and that had replaced “emergency” tariffs the Supreme Court invalidated in February.

Not only that, but after almost two weeks of escalating, deal-breaking US-Iran hostilities (and spiking global energy prices), both sides abruptly stopped fighting Friday night – only to restart the fighting after surprise Iranian attacks Tuesday night.

And these were just the actions. Trump’s words – threats of tariff retaliation for European digital regulation, Canadian wildfire smoke, and tainted Mexican lettuce; a volatile Saudi nuclear deal; big threats for Iran and the Houthis – added to the drama.

To Trump and his defenders, this chaos is leverage. Per the “madman theory,” the unpredictability and impulsiveness compel opponents to cave to the president’s demands without costly follow-through. To some Wall Street traders, the uncertainty means big bucks – hence why they’re willing to pay for faster access to Trump’s social media feed and enjoying record profits. To the American economy, however, the chaos is a hidden tax, delaying corporate decisions on hiring, investment, purchases, and more – and the bill runs into the many tens of billions of dollars.

Start with tariffs. Measures of trade policy uncertainty, or TPU, are the highest in their 60-year history, more than 10 times the pre-2025 average. A review of Trump’s first term tariffs from economists Dario Caldara, Matteo Iacoviello and colleagues found that the jump in TPU during that period shaved 1% to 2% off US business investment within a year, equating to a $23 billion to $47 billion loss in 2018 alone. Applying this framework to the 2025 shock would mean that heightened trade uncertainty cost almost $100 billion in foregone US investment since January of last year.

Extrapolating from a single model is perilous, but independent estimates land in the same ballpark as my own back-of-napkin math. Oxford Economics reckons that tariff-fueled policy uncertainty erased $74 billion in US business investment last year – a drag masked by the AI-buildout boom. The Joint Economic Committee projected that sustained tariff uncertainty would cut manufacturing investment by more than $122 billion per year through 2029.

Although the investment numbers vary, the downward direction is the same.

The Iran war adds to the tab. Caldara and Iacoviello’s companion research on geopolitical risk finds the same linkage as their trade work: Spiking risk drives persistent declines in investment, employment and equity prices due to both the threat and realization of adverse events. The Federal Reserve Bank of Boston expanded on this connection last year, finding that even perceptions of heightened geopolitical risk can result in significant and persistent reductions in corporate spending, particularly for cash-constrained firms.

We don’t yet have hard numbers on the Iran war’s depressive effect on overall private investment, but it’s likely been significant. The May 2026 update to the BlackRock Investment Institute’s geopolitical risk dashboard showed a historic spike in April, owed to the threat of regional war and the “most significant energy crisis since the 1970s.” Oil prices, meanwhile, track the chaos in real time: Brent crude spiked to almost $120 per barrel this spring, fell below $70 when the ceasefire began in early summer, pushed back above $100 last week, dropped as low as $81.63 on Monday, and surged to as high as $85.57 Wednesday morning. With the Iran war affecting not just oil but a range of goods and services on which multinationals depend, the turmoil will show up in the economic data over time.

Other Trump chaos arrives through non-policy channels but can impose similar economic costs. Consider a new paper from a quartet of economists on the public firing of Bureau of Labor Statistics Commissioner Erika McEntarfer last August. After isolating for the effects of the termination, they found that it caused economic policy uncertainty to increase 9% in a single week, suggesting that the episode – and the related erosion of public confidence in BLS independence – “may have reduced GDP by roughly $20 billion.” The economists further caution that this estimate may be conservative, given that so many public and private entities depend on BLS data for employment, sales, pricing and other decisions.

Altogether, the turmoil likely helps to explain why the economy’s performance has been middling despite a generational AI tailwind, significant income and corporate tax cuts, and a more business-friendly regulatory environment. Hiring, factory construction spending, and non-AI investment have been tepid, and both CEO surveys and corporate earnings calls routinely cite uncertainty as a major headwind. According to the National Association of Manufacturers, trade-related uncertainty had been members’ top challenge since Trump took office – finally edged out last quarter by Iran-related worries about raw materials’ costs. Kearney’s 2026 Reshoring Index found that most executives last year favored “reversible moves” such as inventory buildups over long-term investments in domestic production. The Economist recently estimated that the total “uncertainty drag” has cut annual GDP growth by 0.4 percentage point – equal to the hit from Trump’s tariffs and immigration restrictions combined.

Most of Trump’s chaotic moves have a superficial logic: leverage over Canada, pressure on Tehran, prodding multinationals to invest in the US. Yet this ignores the wider, unseen costs of a governing philosophy that treats uncertainty as an objective – jobs unfilled, projects shelved, contracts unsigned, research unfunded, and plenty more — all because decisionmakers have no clue what Washington might do next.

The president revels in the chaos because he doesn’t pay for it. The rest of us do, and the bill grows by the day.