The Trump-initiated trade war has fueled apprehensions regarding economic instability. While most economists do not see a recession coming anytime soon, they acknowledge a rise in the threat of a slump.
The volatility in tariffs
Trump imposed new car tariffs in March, triggering a sell-off in the stock market and fears of stagflation—growth slowing with prices rising. Tariffs drive up prices to consumers and firms and may be left with less purchasing and the overall economy slowing down. Postponement in investing and consumer sentiment plunging also have economic scares to cause.
Reckoning with risks
In the official definition employed here by the National Bureau of Economic Research (NBER) a recession is a significant decline in economic activity. While conditions have worsened, economists estimate only a 30% chance of recession within the next twelve months. However, consumer spending slowed down and the S&P 500 dropped over 9% from peak levels.
The stagflation threat
Stagflation—a rare combination of stagnation and inflation—could occur if tariffs persist. Although economists don’t expect a 1970s-style crisis, continuous increases in prices will put the Federal Reserve in the position where they will have to choose between cooling the brakes on inflation and sustaining employment.
Possible causes of a recession
Recessions have usually been caused by economic imbalance or financial shock such as the 2008 housing collapse or the 2020 pandemic. Signs of stress are emerging, especially among lower-income households struggling to service their debts. The political limits may intrude into federal action if the economic growth falters.
Global Implications
The U.S. system is very integrated with the global system. A U.S. recession would hurt major trading partners, but history shows us that global recessions don’t occur nearly as frequently as U.S. recessions. Although recession won’t be inevitable, tariffs, weakening confidence, and prices rising will be risks. Businesses and consumers must not retreat if the slowdown is to be deepened. A delicate touch in the coming months will be important to avert a worse economic slippage.
