Trump's tariffs stir economic uncertainty: Is a 2025 recession on the horizon for the U.S?

While US president Donald Trump levies the highest tariffs on US imports in more than a century, the economic future has grown darker, as per a report. The fears of rising consumer prices and a severe blow to the stock market have prompted many to ask: Is the United States heading towards a recession in 2025?

The Economic Outlook: Mixed Signals

Economists have divided expectations. A survey conducted by the National Association of Business Economics found that nearly 4 in 10 expect more than 50% odds of a downturn, as per USA Today.

But unpredictability has increased due to Trump's tariffs and economic metrics, such as retail sales and job increases, seem less trustworthy than usual.


Some economists are looking for new, real-time sources of data to measure consumer and business behaviour, as per the report. Rather than listening to what people say, they are now paying attention to what Americans actually do. Based on these data, a more optimistic story has emerged, one that says the economy might narrowly escape a severe recession, according to USA Today.

While, other economists are sceptical, as will take a few months for tariffs to filter through to consumer prices, reported USA Today. These economists believe that what Americans say and how they feel about what’s coming is a more accurate barometer for predicting the future, according to USA Today.

Over the past few months, the American economy has shown some hopeful signs. Employers added a strong 228,000 jobs last month, and retail sales rose a healthy 1.4%, well ahead of forecast—numbers that traditionally indicate an economy in good health, according to the report.

However, with tariffs being announced, economists have said these measures may already be obsolete, as per USA Today. Many retailers reported an increase in sales as shoppers moved to buy products before tariffs increased, which could mean the next few months would experience slower sales as a consequence, according to the report.

Chief US economist for Oxford Economics, Ryan Sweet said, “A lot of the data looks great in the rear-view mirror. Things are changing so much,” quoted USA Today.

Some analysts contend that the actual impacts of tariffs will not be experienced right away but could begin to affect consumers severely by midyear, particularly as costs increase because of the new import tariffs.

Jonathan Millar, a US senior economist with Barclays, predicts mild recession by the second half of the year, as per USA Today. He said, “If we get tariffs, you’re going to get pretty negative effects. It eats into (consumers’) purchasing power,” as quoted in the report.

Key Economic Indicators to Watch

As much as there is uncertainty, some key indicators provide hints about where the economy may be going:

• Jobless Claims: Unemployment claims are low, a sign that employers are reluctant to terminate employees despite the economic disruption from tariffs.
• Job Ads: Job ads on websites such as Indeed have not decreased even since tariffs were imposed, suggesting companies are still on the lookout for employees in spite of the present trade tensions.
• Retail Sales: Retail sales continue to display robust expansion, although there are economists concerned that this is merely due to consumers purchasing prior to higher costs. These improvements could prove fleeting.
• Restaurant Spending: Consumer spending on discretionary items such as eating out remains strong despite economic concerns. This indicates that, at least for the moment, Americans continue to spend money on non-necessities.
• The Stock Market: The stock market itself, although still not in bear market levels, has evidenced its stress. The S&P 500 index, at more than 10% decline from an earlier peak earlier in the year, has evoked fear regarding an economic deceleration, according to USA Today. Market selloffs cause many higher-income Americans whose net worth is significantly lower to reduce their spending, reported USA Today.
  CFRA Research and Moody’s Analytics revealed that nine of the past 14 bear markets since World War II have been followed by recessions within an average of six months, as per the report.

FAQs

Why are Trump's tariffs causing uncertainty in the economy?
The unpredictability of their impact makes it difficult to gauge how they will affect consumers and businesses, as per USA Today.

Will tariffs affect consumer purchasing power?
Yes, increased costs from tariffs are expected to reduce purchasing power later this year.