President Donald Trump’s fluctuating decisions on tariffs against major trading partners are causing some economists to worry about a potential economic slowdown amid rising living costs. This week, Trump’s imposition of heavy tariffs on Canada, Mexico, and China, followed by a delay in their full implementation until April 2, has unsettled financial markets. Economists warn that if these tariffs are fully enforced, a swift recession coupled with high inflation could occur. The ongoing uncertainty surrounding future trade policy is already negatively impacting the economy.
Tariffs have the potential to decelerate economic growth while increasing living expenses at a time when the economy is already showing signs of strain. Experts are increasingly concerned about ‘stagflation,’ a condition marked by stagnant economic growth and high inflation. Stagflation poses a dual threat as prices rise while jobs and pay increases become scarcer.
According to Brendan McKenna and Azhar Iqbal, economists at Wells Fargo Securities, the U.S. economy could enter a recession as early as the second quarter of 2025 if Trump enforces his proposed tariffs without further delays or reductions, and if targeted countries retaliate with equivalent tariffs. This scenario would likely result in a significant rise in inflation, with the Consumer Price Index projected to increase 0.7 percentage points faster over the year.
“Tariff-induced inflation amid slower growth could bring the economy dangerously close to stagflation,” commented Jeffrey Roach, chief economist for LPL Financial.
This tariff situation arises at a delicate time for the economy, which is already displaying warning signs of a potential recession. Recent weeks have seen declines in both consumer confidence and spending, while an early projection of the Gross Domestic Product indicates that economic output may contract in the first quarter for the first time since 2021.
“Amid signs of consumer weakness and with tariffs just now taking effect, we are officially on recession watch,” noted Ryan Swift, U.S. bond strategist at BCA Research. “The February retail sales report will be a particularly important signal of U.S. consumer health. Stay tuned.”
— news from Investopedia