U.S. Macroeconomic Indicators Vol IV, Issue 2

In this Section

How Tariffs Could Impact The U.S. Economy And Insurance Industry
The Future Of Work: Is “Hybrid” The New Remote?

HOW TARIFFS COULD IMPACT THE U.S. ECONOMY AND INSURANCE INDUSTRY

Earlier this year, the U.S. announced a series of tariffs that were broader and steeper than most expected, with the potential to significantly reshape the U.S. and global economy. While many tariffs have been rolled back and paused, it’s still uncertain where tariff policy will ultimately settle. Some are wary of the impact on growth and inflation, as well as increased volatility in financial markets. While insurance brokers are likely to be shielded from any immediate impact, tariffs could lead to another rebound in Property & Casualty (P&C) rate increases as repair and replacement costs rise. However, if U.S. economic growth is impacted in the longer-term, insurance brokers may see slower growth as well.

Current tariffs vs. historical tariffs

On April 2, President Trump announced reciprocal tariffs on imports from about 90 countries. These tariffs are higher than the 10% current tax applied to all imports to the U.S. The intention of the new tariffs is to get rid of a trade deficit between the U.S. and other countries, but some analysts are concerned that the tariffs could lead to price increases across many products, including groceries, gas, electronics, and cars.

The tariffs imposed on nations varied greatly. Initially, both Canada and Mexico were to be charged a 25% tariff on all products coming into the U.S. After a temporary pause, the two countries would have the tariff on their imports drop from 25% to 12% once they met Trump’s demands on immigration and drug trafficking.

Mexico, Canada, and China are the top three trading partners of the U.S., and together, accounted for 41% of all U.S. international trade in 2024.

Other trade partners – including South Korea, Taiwan, and those in the European Union – would also be subject to taxes ranging from 20%-34%. However, on April 9^th, the U.S. announced a 90 day pause for tariffs on Taiwan and South Korea, while delaying the implementation of European Union from June 1 to July 9.¹

Since the first introduction of the new trade policies, the U.S. has rolled back a number of the new tariffs. Many tariffs have been paused, with a 10% baseline tariff on goods from many countries. On May 12, the U.S. and China announced that they reached a deal to decrease their recent heavy tariffs for 90 days. The U.S. will temporarily drop the 145% tax that President Trump imposed in April 2025 to 30%, while China agreed to lower its tariff rate on U.S. goods to 10% from 125%. However, the U.S. and China will most likely still have more comprehensive negotiations in the future. The U.S. also reached an initial trade agreement with the UK, which lowered the tariff rate to 10%, down from the initial reciprocal tariffs announced in April of up to 50% on goods from trading partners in the EU.²

Some analysts have concerns around tariffs and their impact on the economy given the history of tariff policy. President Herbert Hoover signed Smoot-Hawley into law in June of 1930, months after the major stock market crash. Smoot-Hawley increased tariffs on a large number of imported goods, and caused several countries to enact retaliatory tariffs, driving a decrease in trade. The intention was to protect U.S. farmers from foreign competition but also extended to a broad swathe of manufactured goods. In that historical context, many economists believe that Smoot-Hawley worsened the nation’s economic downturn.³

The current impact on the U.S. economy

In the first quarter of 2025, U.S. GDP (Gross Domestic Product) shrank by 0.3%, marking the first contraction in three years, as businesses stocked up on imports and consumer spending slowed. However, imports rose 41.3%, driven by a 50.9% increase in goods – the highest since 1974 (outside of the COVID pandemic). Notably, imports subtracted about five percentage points from the headline GDP. Some analysts note that this contraction in growth may not be as negative, as the trend could likely reverse.⁴

0.3%

Decrease in U.S. GDP, marking the
first contraction in three years

While the economy has been resilient, there are concerns around a slowdown in growth, partly driven by the continued uncertainty around tariff policy.

Morgan Stanley projects a 40% chance of recession and 30% chance of stagflation in the U.S. this year. In April, Goldman Sachs also increased its recession forecasts, from 35% to 45%.⁵

While the contraction in GDP may contribute to the Federal Reserve’s future decision to lower interest rates, inflation increasing in Q1 2025 may give them pause. The Personal Consumption Expenditures (PCE) Price Index – the Fed’s preferred inflation gauge – rose 2.3% year-over-year (YoY) in March, down from February’s 2.5% and suggesting that price pressures were muted through the end of the quarter. Following the Fed’s May meeting where interest rates were unchanged, markets are pricing in a rate cut at the June Fed meeting and a total of four moves by year end.⁶ Following the FOMC (Federal Open Market Committee) meeting in May 2025, Fed Chair Jerome Powell said, “Despite heightened uncertainty, the economy is still in a solid position.”⁷

The potential impact on the insurance brokerage industry

If higher tariffs do go into effect, P&C rates will likely increase further, because broad-based price increases will also increase repair and replacement costs – particularly in segments like property and auto. This could take some time, similar to the period during the pandemic, but carriers could act more swiftly if they anticipate an immediate impact.

Tariffs could directly affect many insured clients, with the impact varying by geography and industry. Numerous sectors, including construction, manufacturing, and healthcare, depend on imported goods. For example, if lumber costs rise, a construction company will likely pass the increase on to their customers. That could boost revenue if the consumer bears the increase – or it could lead to a decline in business if consumers pull back on spending. Industries like tourism and hospitality could suffer from declining demand if travel and discretionary spending slow. For example, there are reports that Canadian tourists are reconsidering U.S. travel plans – potentially impacting retail and hospitality revenue in states like California, Florida, Nevada, New York, and Texas.

Tariffs, along with economic uncertainty, can affect corporate decisions, including internal investments, expansion plans, IPO planning, and larger consolidation opportunities — potentially leading to a decrease in investments. Tariffs could also have a more direct impact on insurers if they lead to a slowdown in business activity due to a potential recession or stagflation scenario. This slowdown can put pressure on overall revenue, which would be reflected in reduced insurance premiums. As a result, brokers could see lower organic growth as commission income decreases.

THE FUTURE OF WORK: IS “HYBRID” THE NEW REMOTE?

From 2020-2023 remote work was common. Across some companies and industries, not working from home seemed unusual. But as the dust settled on the pandemic, return-to-office (RTO) mandates began, and even companies who previously supported flexible arrangements changed course. With all the possible workplace options — fully remote, hybrid, in office — what are the current trends and what’s coming next?

Current state of the workplace

Today, hybrid appears to be the new norm, offering a compromise between employees seeking flexibility and employers not sold on the benefits of work-from-anywhere policies. In-office work is still 30% lower than it was pre-COVID⁸ and with 53% of U.S. companies in 2024 requiring employees to work in the office at least three days a week, up from 37% in 2023.⁹

This aligns with the insurance brokerage industry’s latest hybrid work plan, with most firms with hybrid models requiring employees to be in the office at least three days a week.

A majority of remote employees are men and most tend to have advanced degrees.⁸ While the majority of teleworkers are between the ages of 24 and 35,¹⁰ some companies are offering remote work to older employees as an incentive for them to delay retirement until they can be replaced. While this practice is not exclusive to the insurance industry, it could be a useful strategy for an industry experiencing a mass retirement of professionals.

The insurance industry’s employment landscape

Typically slower to adapt to changes in working styles or trends, the insurance industry may become a leader in this space in the next few years, as insurance agents and brokers appear largely committed to flexibility. According to MarshBerry’s 2025 Insurance Agency & Brokerage Compensation Report, most insurance brokerage firms offer some remote option, and about 80% of surveyed firms report no plans to reduce these policies in 2025 (even as many other industries institute RTO).

Smaller firms (those with less than $5 million in revenue) tend to have mixed results – some are using flexibility as a way to attract talent from larger companies, while others have stricter policies, either prohibiting it entirely or allowing it only occasionally.

Potential barriers to remote work in insurance include managing data security, ensuring effective communication, and maintaining a strong company culture. And while 50% of insurance firms saw no change in employee productivity since offering remote work, 22% reported a decline. Then there are tax implications to consider which vary by state.

The real estate factor

One factor in remote vs. in-office decisions is the cost savings associated with reducing office space expenses. Businesses with more remote positions can expand operations without worrying about purchasing additional real estate and incurring related costs, such as utilities, security, cleaning, and furniture. According to a study from Global Workplace Analytics, companies could save as much as $525-$665 billion/year as a result of reduced costs due to remote opportunities.¹¹ IBM and Sun Microsystems both reduced real estate costs by $50 million and $68 million, respectively, while Dow Chemical and Nortel saved over 30% on other costs, such as absenteeism, turnover, and increased productivity.¹⁰

On the flip side, businesses that have already purchased expensive real estate are calling employees back into offices to make use of the empty space, particularly those who invested in upgrades after COVID.

What’s next for the workforce?

As the need for office space declines, the commercial real estate industry should plan for changing worker expectations, including collaboration spaces and tools, quiet focus areas, or digitally enhanced offices.

Another influence on the future of working styles is the labor market itself. The “Great Resignation” of 2021 drove more flexible working arrangements as employees had their pick of jobs. But today, hiring has decreased, and employers have the upper hand in working arrangements.

A “Great Detachment” has emerged since the beginning of 2025, leading to employees applying for new positions at the highest rate since 2015.¹² But with fewer opportunities, disengagement continues to climb. Could more flexible working arrangements be part of the solution?

Since the majority of remote workers are younger than 40, some believe this trend is most likely to increase as younger generations tend to prefer greater flexibility and more choices. Others believe that the younger generations may eventually find that they miss the collaboration, relationship development, and opportunities for growth that in-person work can deliver. The good news is that as technology and communication tools become easier and more affordable, companies can offer flexible working arrangements across roles and industries without negatively impacting productivity or profit.

Sources:

In This Issue

Focused Insights: War For Talent: Attracting and Retaining the Next Generation

Industry Insights

M&A Market Update

Public Broker Peformance