Proposed tariffs create significant uncertainty for consumer prices, but Kokomo should be okay

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Predicting the future is a thankless exercise, and yet so much of life is invested in it. From the weather to the sporting fields to the economy, people make personal and financial plans based on predictions.

Recently, Indiana University Kokomo held its Futurecast economic outlook panel, focusing on what 2025 will bring to Kokomo and Howard County. The gathered experts expressed guarded optimism, but one persistent theme kept their predictions in check: the promise of tariffs coming from incoming President Donald Trump.

Since the election, Trump has promised tariffs against Canada and Mexico, as well as the BRICS Group of countries comprised of Brazil, Russia, India, China, South Africa, Egypt, Ethiopia, Iran, Saudi Arabia, and the United Arab Emirates.

Canada and Mexico provide nearly half of the U.S. supply of fresh fruits and vegetables. The BRICS Group of nations represents one-quarter of the global economy. Tariffs against some or all of these nations will impact the U.S. economy.

Chittibabu Govindarajulu, Dean of the School of Business at Indiana University Kokomo, led the discussion and expressed the uncertainty that prevailed throughout the Futurecast presentation.

“I know most of you have similar questions, like I have with the new administration taking charge in January,” said Govindarajulu. “What's going to happen to tariffs? Are the tariffs going to increase, and will it impact consumer product pricing? Will it impact the automobile industry? Then, what will that do to inflation? We have all these questions.”

The experts gathered for the Futurecast panel did their best to predict an answer. The consensus appeared to be that the local and national economy have performed well over the past year or two, and they hope that trend will continue, barring a trade war.

Brian Vander Schee, Clinical Associate Professor of Marketing at the IU Kelley School of Business, revealed a prediction that the national economy will grow at about a two-percent rate, similar to the 2023 prediction. But this year’s economy beat the prediction.

“We projected to get two percent; it's actually three percent,” said Vander Schee. “Why did that take place? Part of it is consumers feeling more confident and accumulated savings. It has been greater consumer spending based on consumer debt.

“People are willing to take on more debt to support their spending habits, and that has kept the economy moving forward.”

Vander Schee pointed to low unemployment – between four and five percent – as well as a continued surplus of available jobs in the market as factors keeping the economy stable and growing.

“Looking at the forecast for 2025, we anticipate a steady 2.1 percent (growth), and for the labor market to be also in equilibrium. But the big question is how the next administration going to handle international trade policy.”

Marina Niessner, Associate Professor of Finance for the IU Kelley School of Business, believes that the financial markets will continue to perform well, based on the expectations that interest rates will continue to be cut in 2025. Her prediction was that the rates will bottom out at three percent in late 2025.

However, her predictions broke somewhat with the consensus of the rest of the panel when it came to the Trump administration’s expected approach to business and trade.

“It may be a good business environment going forward in the next couple years, partially due to deregulation,” said Niessner. “There might be also some corporate tax cuts, so that would be good for the market.”

Again, the specter of tariffs overshadowed Niessner’s otherwise positive outlook.

“The tariffs, we'll see how they play out,” said Niessner. “If they are retaliatory tariffs, that might cause prices to go up, which again, inflation goes up.”

Mark Frolich, Associate Professor of Operations Management for the IU Kelley School of Business, focused on Indiana. He predicted a 2.9 percent growth rate for the state’s economy in 2025, with central Indiana -- and Kokomo – driving the growth.

“Indiana looks like it's going to have a better 2025 than the nation,” said Frolich. “Central Indiana is a big driver of our economy, and manufacturing across the state, all things considered, is pretty healthy.

“The Indiana Economic Development Commission said, as of the first nine months of this year, there was over $38 billion of new investment in our state. That was more than all of 2023. A lot of companies are investing in the state.”

Frolich pointed out that the expected growth won’t be uniform. Population centers and manufacturing hubs will benefit significantly more than Indiana’s rural communities. Still, he believes Hoosiers will experience a strong economy in 2025, thanks to an expected change in the way people spend their money.

“Right now, people are indulging in services,” said Frolich. “Consumption is up, but consumer durables -- cars, appliances, things like that -- are down. In the next couple of years, people are going to have to replace their cars and consumer durables. That's going to favor the manufacturing sector.”

Dmitriy Chulkov, Professor of Business Analytics and Economics for the School of Business at Indiana University of Kokomo, celebrated the job growth taking place in Kokomo and Howard County. The local community boasts 1,000 more jobs than it had a year ago, he said.

At the same time, unemployment rose slightly, which seems counter-intuitive. Chulkov attributed it to the number of workers entering the job market.

“There are more people looking for work,” said Chulkov. “The labor force is growing faster than the number of jobs over the last year. Part of that is normalization, because a lot of people went out of the labor market during the COVID pandemic. Right now, they're coming back in.

“If everything goes according to plan, we have two battery plants. Each one has 1,400 new jobs. The entire employment in Howard County is 35,000 so that's about an eight percent increase in the number of jobs. I cannot overstate how important this is.”

Chulkov found a silver lining for the local economy, should tariffs or a trade war arise in 2025. IF the tariffs target the automotive industry, it might reduce foreign competition for new vehicle sales and electric car battery manufacturing. That would potentially protect local jobs, he said.

Robb Blume, President and CEO of Community First Bank of Indiana, rounded out the speakers on the panel. He believes Kokomo and Howard County are well-positioned for growth in 2025.

“Despite the fact that we think that some of the new policies coming in may have some inflationary effects, the two interest rate cuts that we've seen this year have not had the impact on the mortgage rate markets that I think many anticipated. They've fallen at a slower rate, and we've actually seen some return to higher levels of interest rates.

“As a local community bank, we expect to see continued growth in Howard County, driven by housing demand, the StarPlus project, and the ancillary businesses surrounding that are growing. We also see growth in tourism and service efforts, particularly in the area of youth sports, and the associated needs for dining and entertainment for those visitors.”

Blume said he expects governmental leadership at all levels to be pro-business, seeking lower taxes and less regulation.

“That means more money for capital investment, for investment in human resources, for investment in your community,” said Blume. “On the flip side, less federal spending in some areas, as proposed and promised, will have some potential negative impacts. We'll have to come up with creative ways to fund our own improvements and continue the growth that we have in front of us.”