Amid Tariff Tensions, North American Consumers Are Increasingly Pessimistic About the Economy

In the first quarter of 2025, the Index of Consumer Sentiment declined across most of the 43 countries tracked by Morning Consult. Increased pessimism could be partly due to the United States introducing new tariffs on its closest trade partners and threatening more on the largest global economies, leading to heightened economic uncertainty. In fact, consumer sentiment in all three of the large North American economies (Canada, Mexico, and the U.S.) declined through Q1 2025, driven primarily by pessimism about the future of the economy. With the U.S. announcing a blanket 10% tariff on all countries as well as 60+ countries facing even higher tariffs of up to 50%, consumers in many more countries may begin to similarly sour on the future of the economy. And while trends in consumer sentiment don’t always translate into trends for spending, it can be an early sign of weakening spending ahead.

Amid trade tensions, consumer sentiment declined through Q1 for Canada, Mexico, and the U.S. 

Although reduced consumer sentiment in the first quarter was widespread throughout the globe, Canadians led the declines – consumer sentiment in Canada dropped 8% from December 2024 to March 2025, more than any other country. The largest drop in sentiment for Canada came after the inauguration of President Trump on January 20th when he first announced his intention to implement 25% across-the-board tariffs on Canada and Mexico, the largest trade partners of the United States. This was materially different from what was proposed on the campaign trail, including 10% across-the-board tariffs on all countries and 60% tariffs on China, without highlighting Canada or Mexico. As a result, when these potential tariffs were announced on day 1 of his presidency, it proved to be somewhat surprising to the close allies and trading partners of the United States. The tariffs, facing back-and-forth negotiations and delays, are at 25% today for all imports that are non-USMCA-compliant goods (Over 60% of all Canadian imports and 50% for Mexico).

Morning Consult’s Index of Consumer Sentiment comprises five subindexes, mirroring the survey by the University of Michigan. For Canadians, the largest drops have come from the three subindexes that capture future expectations: 1-year and 5-year ahead Business Conditions and 1-year ahead expectations for Personal Finances. In addition, the Current Buying Conditions index has also declined, which asks survey respondents if they think now is a good or bad time to buy major household items. The other current conditions index, for Personal Finances declined somewhat. Still, the magnitude was much less sharp than the other four indexes, suggesting that most of the declines in ICS are driven by worries for what is to come rather than consumers’ current financial situation today. 

Mexican consumer sentiment scores similarly declined through Q1, but less in magnitude (3% QoQ) and less immediately than Canadians’. Consumer moods began to take a negative turn in the first half of February in Mexico rather than immediately following Trump’s inauguration as Canada did. Canadians have been particularly miffed by the tariffs proposed by the United States, with our northern neighbors feeling more unfavorable towards the U.S. and calling for boycotts of U.S. brands. 

Furthermore, the changes in the ICS subindexes vary from those of Canada. For Mexicans, most of the declines have come from the most forward-looking subindex — the index measuring 5-year-ahead business conditions expectations. Even more so than Canadians, Mexican consumers are worried about the future rather than their current economic conditions.

Like Mexico, consumer sentiment in the U.S. declined 3% from its average in December 2024 to March 2025. Consumer sentiment continued increasing through most of January and, like Canada, it began decreasing shortly after January 20th, driven mostly by declines in the three future expectation indexes. 

Independents, not just Democrats, are souring on the economy, while optimism among Republicans has stopped growing

Partisanship plays a prominent role in how U.S. consumers view the economy's health, particularly for those who identify as Republican or Democrat. In the days following the election, Republicans’ ICS scores jumped up while Democrats’ sank sharply. At the same time, ICS for Independents followed Republicans to a more moderate degree. For Democrats and Republicans, a similar dynamic played out after the inauguration in January – Democrats became more pessimistic while Republicans felt more optimism about the current and future economy. However, in a reversal from the post-election period, Independents also followed the trend of Democrats, to a more muted degree, rather than following the optimism of Republicans as they did after the election. 

Furthermore, increased optimism from Republicans following the start of Trump’s term began to peter out in early February – the 5-day average reached a recent high at 128 on February 8th. Still, as of March 31, it was 125. At the same time, Independents and Democrats continued to report declining confidence in the U.S. economy. The slightly diminished ICS scores from Republicans, alongside the continually declining scores for Independents, suggest that growing gloom and doom about the economy are starting to break through beyond party lines. This could be because concerns about the economy have manifested into more tangible measures like stock market declines. In addition, even before the growing economic uncertainty from new trade policies, the cracks in the economy were already forming with a cooling labor market, reheating inflation (including the very visible egg price surge), and somewhat cooling spending, especially for low-income consumers. Taken all together, there has been an increase in reports of hearing “bad news” about the economy, which could further dampen consumers’ outlook.

Sentiment declined in most South American countries, while movement in Europe and Asia was mixed

Aside from North America, a majority of the countries tracked by Morning Consult had diminished consumer sentiment scores through the first quarter. However, results are mixed by region. Consumer sentiment in all South American countries tracked by Morning Consult, except for Chile, declined through Q1. Brazil had the largest decline, as its inflation rate reached its highest level in 2 years (5.26% YoY).

In other parts of the world, trends in sentiment were mixed. Sentiment soured most in Japan and the Philippines over the quarter, whereas on the opposite end of the spectrum, South Korea and Singapore experienced rather strong growth. ICS dropped following President Yoon Suk Yeol declaring martial law on December 4th but rapidly recovered in late December and early January before correcting again through the rest of the first quarter. Sentiment was also mixed in Europe – the larger economies, including France and Germany, led the gains in sentiment. France’s unemployment rate is relatively low compared to historical standards and its peers, and its inflation rate is also lower than the E.U. more broadly. ICS growth in France was driven by both current and future expectations for the economy and personal finances.

However, many of the countries with growing consumer sentiment in the first quarter of the year will be subject to new tariffs from the U.S., as announced on April 2nd. In fact, 27 of the 43 countries tracked by Morning Consult will be subject to broad-based tariffs greater than 10%, with Vietnam (46%) and China (54%) facing the highest rates. That isn’t including Canada and Mexico, which are already facing 25% tariffs on 50% or more of their exports to the U.S. (all that are non-USMCA-compliant). All of the E.U. countries will be subject to a 20% tariff rate, which as long-term allies, could dampen consumer confidence, similar to the drop in Canadian sentiment. 

Although in recent years, there has been an often-cited mismatch between consumer sentiment trends and the health of the economy, sometimes referred to as the “vibecession”, declines in sentiment due to newly imposed tariffs and a potential tariff war are a rational reaction from consumers, as global growth could be severely impacted depending on each country’s exposure to the U.S. market.