Calendar year 2025 has been exciting for observers and participants in the global economy, as chaotic ever-changing trade policies have disrupted supply chains and injected massive uncertainty into policy.

Basic long-held concepts such as gains from trade, comparative advantage, and specialization have been tossed aside in a cascade of concern about merchandise trade deficits. I am writing this as an old economist fascinated by the resurrection of long-discredited ideas from the dustbin of history. Socialism, government ownership or directions of firms, has had a resurgence: Intel, directed investment by foreign firms; Golden Share of US Steel; and NYC Mayor Candidate.

Trade wars, the ghosts of Smoot Hawley from the 1930s, are back reducing living standards in their wake. (Our morning coffee has soared in price because of some pique. Perhaps we could grow it on the Palouse!) The idea of an independent monetary authority, a hard-earned lesson from the inflationary episode of the 1970s, is now under attack. A blocked-by-the-court attempt to fire a Fed governor, a White House employee on the board and drumbeat of insult have been involved.

It is reminiscent of Lyndon Johnson and Richard Nixon, but more crude. The risk is higher inflation. The fate of these policies will be decided in part by the courts after the deadlines for this publication, but have the potential for significant long-term impacts.

The upturn from the 2020 Covid recession is into its sixth year, having survived shocks from monetary and trade policy that threatened its demise. The year 2025 opened with a drop in GDP as imports surged ahead of the tariff deadlines only to rebound in the second quarter with a 3.8% growth rate. As 2025 winds down, the labor market has continued to weaken with August net job gains at 22,000. Job openings per unemployed worker fell to 0.98 in August down from over 2 in 2022. The phrase “No Hiring, No Firing” has been used to describe the environment. The government shutdown has halted the statistical flows from the leaderless Bureau of Labor Statistics and the Bureau of Economic Analysis. The unemployment rate moved up to 4.3% in August. The labor market is being buffeted both by weaker demand as well as supply by immigration changes and deportations.

Inflation was a major issue in the last election and the rate using the CPI, or the index for Personal Consumption Expenditures, has come down but remains above the Fed’s target. The purpose of a tariff is to raise prices of imports and implicitly the costs of firms using imported inputs.

One can already see the impact on metals prices, coffee, toys, sporting goods, clothing and appliances to name a few. Will the price increases be a one-off event that will fade, or will they alter expectations and behavior threatening the objective of low inflation--no one knows for sure. Using the October NABE forecast, the range of forecasts for 2026 inflation from the five lowest to the five highest is from 1.7% to 3.4%- an indication of uncertainty.

The Fed is on the horns of a dilemma, with inflation above target suggesting no change or an increase in rates and the labor market weakening, which implies cutting rates. The risks have tilted in a downward direction as Powell said in October. The risk would be to lower rates and imperil the inflation objective or not cut rates and threaten the upturn. How far the attack on an independent monetary authority goes has long-term implications, and 2026 will be a year of conflict on this front.

The U.S.-led rules-based trading system is gone--other nations are making their own agreements. Some have retaliated and others have made deals. Supply chains are being re-evaluated and our status as a trusted partner is history. What the global system of commerce will look like in the years ahead is uncertain. The dollar is still supreme, but less trustworthy with the Fed under attack and trade chaos. The turmoil will continue in 2026.

The U.S. population is inexorably aging with the oldest boomers turning 80 in 2026, and our population and labor force growth coming primarily from net in-migration. Turning off that flow of people and ideas will be a long-term drag. (Look at the people, the institutions, and the paths of the just announced Nobel Prizes!) It is not clear how far or how long this process will go on, but the implication is slower growth in employment and output.

One of my favorite lines when thinking about a region is “a region floats on a national/global sea buffeted by local tides and winds”. The seas have shifted in trade, the underlying institutions of monetary and regulatory policy and technology. In 2025 we saw a disruptive start; in 2026 will be a continuation. Both Idaho and Washington cooled in 2025 and are likely to remain slow in the coming year.

Dr. John W. Mitchell, who currently is principal of M&H Economic Consultants, previously served as chief economist for U.S. Bancorp, and also served as an economics professor at Boise State University.