Will Donald Trump’s trade policies tip the US economy into recession?

After a tumultuous period marked by a sharp stock market decline fueled by anxieties over his aggressive trade policies, President Donald Trump is under increasing pressure to demonstrate a coherent and credible plan for sustained economic growth.

With businesses and investors rattled by the prospect of escalating tariffs, the president must now work to restore confidence and allay fears of a potential recession.

Walking a tightrope: balancing protectionism and growth

Trump is scheduled to deliver an address to the Business Roundtable, a prominent trade association of CEOs, on Tuesday afternoon.

During the 2024 campaign, he successfully courted this influential group with promises of lower corporate tax rates for domestic manufacturers.

However, his current plans to impose tariffs on a wide range of goods from Canada, Mexico, China, and potentially even Europe, Brazil, South Korea, and other countries, are viewed by many as a contradictory approach that could ultimately harm the US economy.

The president’s proposed tariffs on key imports such as steel, aluminum, pharmaceutical drugs, copper, lumber, and computer chips are seen by some as a “massive tax hike” on American businesses and consumers, raising concerns about the potential for stifled demand and increased prices.

Market vote: a clear sign of disapproval

The stock market’s recent performance serves as a clear indicator of investor unease.

The significant selloff observed over the past two weeks places the president in a precarious position, forcing him to reconcile his enthusiasm for protectionist trade policies with his image as a business-savvy leader capable of fostering economic prosperity.

Adding to the pressure, prominent economists are warning of the potential for a significant economic downturn.

Harvard University economist Larry Summers, a former treasury secretary for the Clinton administration, recently estimated the odds of a recession at 50-50.

“All the emphasis on tariffs and all the ambiguity and uncertainty has both chilled demand and caused prices to go up,” Summers posted on X.

We are getting the worst of both worlds – concerns about inflation and an economic downturn and more uncertainty about the future and that slows everything.

A ‘period of transition’: Trump’s promise of future prosperity

In an attempt to assuage public concerns, Trump has acknowledged that his tariff policies may cause a “transition” in the economy, with the aim of incentivizing companies to relocate their factories to the United States to avoid the import taxes.

However, his recent remarks have done little to quell anxieties.

During an interview broadcast on Fox News Channel’s ‘Sunday Morning Futures’, Trump acknowledged the potential for economic disruption, stating:

I hate to predict things like that. There is a period of transition, because what we’re doing is very big. We’re bringing wealth back to America. That’s a big thing. And there are always periods of — it takes a little time. It takes a little time. But I don’t — I think it should be great for us. I mean, I think it should be great.

Market reality: the Trump slump

The promise of future economic prosperity has failed to reassure investors, as evidenced by the S&P 500 stock index’s decline of 2.7% on Monday.

This “Trump slump” has effectively erased the market gains that followed his victory in November 2024, signaling a significant erosion of investor confidence.

While S&P 500 futures pointed to a slight rebound on Tuesday, the gains were not nearly enough to offset the substantial losses incurred on Monday.

With the economic outlook hanging in the balance, President Trump faces a critical moment to articulate a compelling and credible economic vision that can restore trust and calm the anxieties of both the business community and the broader investing public.

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