New data from CNBC’s Rapid Update predicts that rising tariffs are pushing the U.S. economy closer to stagflation, with widespread plant closures, bankruptcies, and persistent disruptions across global supply networks. Particularly hard-hit are the automotive and agriculture sectors, where compounding costs and sourcing constraints are forcing procurement and operations leaders to reassess supply strategies in real time.
The Rapid Update, which averages forecasts from 14 economists for GDP and inflation, projects a mere 0.3% GDP growth for Q1 2025—down sharply from 2.3% in Q4 2024. If realized, this would mark the weakest growth since 2022, a period when the economy was still recovering from the pandemic. Meanwhile, inflationary pressures remain entrenched, heightening the risk that the U.S. could face a period of stagflation
Economic Indicators Point Toward Stagflation
Recent data suggests that stagflation, a combination of high inflation and unemployment, is becoming an increasingly probable outcome for the U.S. economy.
Inflation generally remains low when the economy is weak, as reduced demand for goods and services keeps prices in check. However, higher inflation typically occurs in a strong economy, where increased consumer demand pushes prices upward.
Stagflation, on the other hand, presents the worst of both situations: sluggish economic growth coupled with rising prices, creating a challenging environment for both businesses and consumers.
Adam Posen, president of the Peterson Institute for International Economics and former Federal Reserve official, has placed the odds of a U.S. recession at 65%, emphasizing that inflation is a certainty regardless of whether a recession follows.
J.P. Morgan has forecasted a U.S. recession in the second half of 2025, a prediction that has been reinforced by the first contraction in U.S. factory activity for the year in March. The contraction isn’t isolated to the U.S.; it’s also seen in key Asian economies, including Japan, South Korea, and Taiwan, where factory activity has also taken a downturn.
This economic slowdown has far-reaching effects. Moody’s estimates that global default rates could climb to 8% by the end of 2025, compared to just under 5% at the beginning of April.
With over $43 billion in bonds and loans set to reach refinancing levels, it’s expected that more companies will face restructuring or bankruptcy.
Everstream Analytics reports that plant closures, insolvencies, and layoffs in the U.S. have more than doubled in Q1 2025 compared to Q1 2024. Distressed debt measures have also surged globally to their highest levels in 15 months, signaling deepening financial strain.
Source: Everstream Analytics
Automotive and Agriculture Sectors Bear the Brunt
Among the hardest-hit sectors are automotive and agriculture. The automotive industry is struggling to absorb the added costs from the 25% tariffs on cars, auto parts, steel, and aluminum, imposed during the Trump administration.
Although a pause was announced on country-specific tariffs, these tariffs remain in effect, intensifying the sector’s pain. The high tariffs on steel and aluminum—still effective as of March—are further squeezing margins for manufacturers across the globe.
Companies like AGP Group, a major automotive glass manufacturer, have cited tariff uncertainty as a key driver in closing plants, including a facility in Nuevo Leon, Mexico. Additionally, major OEMs such as Stellantis N.V. and General Motors Co. have enacted production stoppages to mitigate rising operational costs.
These disruptions are reverberating throughout the North American automotive supply chain, where Mexican and Canadian plants that supply U.S. OEMs are also experiencing layoffs and production halts. COMPAS Automotive Group has laid off workers in Aguascalientes, Mexico, while General Motors suspended operations in Ingersoll, Canada.
In agriculture, the increased costs tied to tariffs on imported goods are disrupting the flow of supplies. With a strained global supply chain, producers are facing significant price increases for raw materials, forcing them to rethink their production and procurement strategies to maintain profitability.
Rare Earth Elements: The Next Supply Chain Crunch
The situation is about to get even more complicated for industries reliant on rare earth elements. China, which controls 69% of global rare earth production and 90% of the processing capacity, has implemented new export controls on these critical materials.
As a result, industries such as aerospace, electronics, medical devices, and automotive are now at heightened risk of component shortages. These rare earth elements are essential for semiconductors, renewable energy technologies, and advanced manufacturing processes.
For supply chain leaders, these new restrictions could cause significant supply chain bottlenecks and lead to steep price increases across multiple sectors. The reliance on Asian suppliers—especially those in China—has left many manufacturers vulnerable to sudden shifts in global trade policy.
What Stagflation Signals for Strategic Supply Chain Planning
The compounding effects of inflationary pressure, industrial contraction, and geopolitical trade constraints are redrawing the parameters of global supply chain planning. While the return of stagflation is not yet a certainty, the signals—deteriorating factory output, tariff friction, and rising insolvency rates—suggest that reactive playbooks are no longer sufficient.
The automotive and agriculture sectors, in particular, are showing that traditional strategies are no longer sufficient to withstand tariff volatility. Companies must focus on diversifying supply bases and considering nearshoring options to mitigate the risks associated with heavy reliance on single-source or international suppliers. For manufacturers, managing inventory levels and implementing better demand planning systems will be crucial in avoiding costly shortages.
As small businesses face the brunt of rising tariffs, with layoffs mounting and stock values falling sharply, the time for businesses of all sizes to rethink their procurement strategies and resilience planning is now. In this environment, advantage won’t be measured solely by efficiency or growth, but by an organization’s ability to navigate volatility with clarity and composure—making decisions that serve long-term continuity, not just short-term correction.
