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Trump’s tariffs, including reciprocal tariffs worldwide and a more intense trade war with Mexico, Canada, and China, are a pivotal factor for rekindling fears of a recession
It is expected that higher tariffs and a trade war would lead to higher inflation in the US. (AP Photo)
The Wall Street on Monday clocked one of its worst trading days since 2022, driven by US President Donald Trump’s economic and trade policies, including the tariff war, leading to global market volatility and geopolitical tensions.
Investors and market pundits are worried that the trade war and uncertainties in the markets could push the US economy into a possible recession. Trump, however, has ruled out the possibility, offering vague reassurances.
“I hate to predict things like that,” he told Fox News, when asked if a recession was coming in 2025. “There is a period of transition, because what we’re doing is very big — we’re bringing wealth back to America,” he said. “It takes a little time”.
What Is A Recession?
A recession is “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.”
That’s according to the National Bureau of Economic Research, a private nonprofit organisation has a very important role, when it comes to these downturns: Its Business Cycle Dating Committee is the official designator of peaks, troughs, expansions, contractions — and yes, recessions — in the business cycle.
The committee determines recession based on criteria: depth, diffusion and duration.
The biggest rule of thumb to predict a recession is the technical notion of back-to-back quarterly contractions in real gross domestic product — the broadest measure of economic activity.
The US experienced similar economic activity in the first half of 2022, although the second quarter was eventually revised into a slight expansion. “While those declines set off alarm bells, 2022 was a year of transition as the economy sought to recover from the sharp and sudden downturn caused by the global pandemic,” a CNN report said.
Why Are The Odds Of A Recession Getting Higher?
According to Bloomberg, US consumer confidence has dropped this month the most since August 2021, with recession fears on the rise. The Atlanta Federal Reserve model has also suggested that economic growth might be negative in Q1 2025.
Trump’s tariffs—including proposed reciprocal tariffs worldwide and a more intense trade war against the US three biggest trading partners in Mexico, Canada, and China—are also a pivotal factor.
Businesses are uncertain about the US economy outlook after the fallout of these tariffs ripple down different industries and the stock market.
“It’s a very difficult time to invest in the United States if you don’t know what your inputs are going to cost over a month or six months from now,” Alex Jacquez, chief of policy and advocacy at the economic think tank Groundwork Collective, told TIME. Jacquez used to work at the National Economic Council under the Biden administration.
The uncertainty was also bolstered by Elon Musk, head of Department of Government Efficiency (DOGE), announcing cuts that led to major layoffs in February.
Another key indicator of recession is major spikes in unemployment rates. According to February employment data released by the US Bureau of Labor Statistics on March 7, the US added over 150,000 jobs in the first full month of Trump’s presidency, yet the unemployment rate lifted slightly. But the labour force participation rate slipped.
Why High Tariffs Plan Is The Key Problem
A study conducted at the Massachusetts Institute of Technology, Harvard University, the University of Zurich and the World Bank concluded that Trump’s tariffs in his first term neither raised or lowered US employment. Despite Trump’s 2018 taxes on imported steel, the number of jobs at American steel plants was barely impacted. However, the retaliatory taxes imposed by China and other nations on US goods had “negative employment impacts,” especially for farmers, the study found. These retaliatory tariffs were only partly offset by government aid that Trump was forced to dole out to farmers, partly funded by the incremental revenues raised by the tariffs, as per a report by The Indian Express.
It is expected that higher tariffs and a trade war would lead to higher inflation in the US. This, combined with runaway deficits are likely to force the US Federal Reserve to end its rate-cutting cycle prematurely.
Adding to concerns, Trump’s chief economic advisor, Kevin Hassett, suggested on ABC News that tariffs could become permanent, depending on how other countries respond. If they fail to meet US demands, the tariffs may remain as part of a new economic landscape. In his State of the Union address, Trump downplayed the impact, telling Americans to expect “a little disturbance” but insisting, “It won’t be much.”
What Trump Said On Recession
With Trump appearing not to rule out the possibility of a recession, admitted that his economic policies could take time to have their intended impacts. Trump was also asked about the potential for rising rates of inflation and said: “You may get it. In the meantime, guess what? Interest rates are down.”
Commerce Secretary Howard Lutnick insisted there would be no contraction in the world’s largest economy, while acknowledging that the price of some goods may rise. It comes after a volatile week for US financial markets as investors grappled with uncertainty from his administration’s U-turn on some key parts of its aggressive trade policies.
Meanwhile, White House Press Secretary Karoline Leavitt said in a statement, “Under President Trump, the private sector is leading the way—93% of the job gains in February were in the private sector. This is great news for American workers and families. The Trump Administration will continue to work hard to implement pro-growth policies and push Congress to enact the Trump Economic Agenda.”
