Will tariffs drive US into a recession?

President Donald Trump's trade war sparked a sharp stock market selloff and revived fears that the economy could stall. Economists say the chance of an economic contraction has increased after Trump announced widespread tariffs that were steeper than many analysts were expecting.

Another mounting worry, in the view of economists and market watchers, is the risk that a slowdown in growth will occur alongside accelerating inflation, a dreaded scenario known as stagflation.

During an event in the White House Rose Garden on 2 April, Trump unveiled a 10% baseline tariff on global trading partners, with many countries — including China, Vietnam and those in the European Union — facing much higher levies. Prices of all kinds of consumer goods, including cars, electronics and clothing, are expected to rise if tariffs remain in place.

Businesses, unsure of Trump's next move and the tariffs' impact, might be inclined to put investment decisions on ice, which would weigh on growth. Meanwhile, consumer confidence has deteriorated in recent months, and economists warn the sour mood may presage a pullback in consumer spending, the economy's main growth engine. How the next few months play out is highly uncertain.

What is a recession?

A recession is often understood as a period when economic output contracts for two straight quarters. But the National Bureau of Economic Research's Business Cycle Dating Committee, a group of academics whose determination is regarded as official in the US, defines a recession differently: a "significant decline in economic activity that is spread across the economy and that lasts more than a few months." The committee waits to make the call until they are certain, which can be months or even a year or more after the downturn begins.

To designate that a recession has occurred (or is under way), the committee looks at three criteria — depth, diffusion and duration — and considers factors such as employment, inflation-adjusted spending, industrial production and income. NBER says extreme conditions revealed in one metric sometimes offset weaker signals from another. For instance, the pandemic-driven recession of 2020 was broad-based and characterized by a sharp drop in economic activity, but it was extremely short, lasting just two months.

Economists surveyed by Bloomberg in late March, before the latest tariffs were announced, put the chance of recession in the next year at 30%, up from 25% in the previous month's survey.

Why are people worried about the economy right now?

Consumer spending fell sharply in January (partly a result of severe weather during the month), but instead of rebounding in February, outlays barely rose, data released on March 28 showed. A key gauge of underlying inflation accelerated. The figures, paired with Trump's tariffs and the uncertainty they bring, have raised concerns about the outlook for economic growth. Trump's own remarks have added to people's fears. When asked in a March 9 interview if he expects a recession this year, Trump said the US economy faced "a period of transition." Stock prices, meanwhile, have plunged. As of April 3, the S&P 500 was down more than 12% from the all-time high reached in mid-February.

Tariffs, such as those Trump imposed on steel and aluminum, make it more expensive for manufacturers to produce things. But the levies also affect popular imported consumer goods, like cars, more directly. Those higher costs are often passed along to consumers in the form of higher prices. Consumers, faced with rising prices or worries about job security, may pull back on spending, slowing growth. When businesses elect to absorb the costs, that can eat into profits and curb expansion plans.

But it's not just the tariffs themselves that many economists say could prove problematic for the economy. Elevated uncertainty can lead businesses to hold off on hiring and investment. A sharp and sustained downturn in the stock market has the potential to depress spending among high-income Americans, who have been a key driver of consumption in recent years. Some economists forecast the Trump administration's efforts to shrink the federal workforce could ultimately result in more than half a million job losses by the end of 2025.

Not everyone is worried about tariffs. Trump's top economic adviser, Stephen Miran, has said he doesn't think there will be "material short-term pain" from import levies, arguing that Americans will adapt. And Trump himself has argued the country will be better off in the long term as tariffs prompt businesses to relocate jobs and manufacturing to the US.

How about stagflation?

The trade war poses two risks: slower growth and higher prices. It's relatively rare for these conditions to occur at the same time, but if they do, it results in what economists call stagflation.

Iain Macleod, a British politician, coined the term in 1965. Plenty of economists once doubted stagflation, a combination of the words "stagnation" and "inflation," was possible. That's because slower demand typically limits how much businesses can charge for goods and services, prompting a slowdown in price growth. In the US, stagflation is generally associated with the economic duress of the 1970s, a time when joblessness climbed sharply and surging oil prices sparked higher prices across the economy.

Economists have lowered their estimates for growth in 2025 and marked up their forecasts for inflation, but they aren't warning of anything nearly as severe as what transpired in the 1970s. Federal Reserve Bank of Boston President Susan Collins said on March 27 that it looks "inevitable" that tariffs will boost inflation in the near term. Some officials, like Fed Chair Jerome Powell, expect any such boost to be temporary, while others warn of the risk of more sustained inflation.

If price growth were to remain elevated alongside a cooling economy, the central bank would need to choose between supporting the labor market or fighting inflation.

What triggers recessions?

No two recessions are the same, but downturns are often caused by a shock of some kind — such as a spike in oil prices or, in the case of the 2020 downturn, the Covid pandemic. They can also be a reflection of accumulated imbalances in the economy, like the dot-com bubble that developed in the late 1990s and burst ahead of the 2001 recession. Some have features of both. The so-called Great Recession of 2007-2009 saw a years-long buildup in subprime mortgages before a collapse in the housing market sent shock waves through the financial system.

What makes a recession mild or severe?

There are a few ways to measure a recession's severity, including duration, breadth, how much the economy contracts and how many people lose their jobs. The worst recessions tend to be those paired with some sort of collapse in the financial system, as happened in the US in 2007 and in 1929. The 2007-2009 recession lasted 18 months, making it the longest since the Great Depression. The pandemic-driven recession was short-lived, but the unemployment rate surged to 14.8% — the highest in data going back to the 1940s. The 2001 recession, by comparison, was relatively short and mild.

If the economy were to fall into a recession, would it be a bad one?

It's impossible to know. On the positive side, the hallmark of the post-pandemic economy has been its resilience. The US skirted a downturn in 2022 when economists believed it all but certain. The economy ended 2024 on solid footing and even now layoffs generally remain low (at least outside of the federal government).

That said, there are growing signs of stress, especially among lower-income Americans. For instance, a February survey by the New York Fed showed perceptions among American households that they might miss a debt payment in the next three months rose to the highest since April 2020. Furthermore, Trump and Republicans in Congress might not be inclined to juice a wavering economy. The massive fiscal support of 2020-21 is seen as having contributed to America's inflation problem, plus there are mounting concerns about the fiscal deficit.

What are the implications for the world economy?

The US economy and financial markets are intertwined with economies across the globe — a fact that's become even more clear amid Trump's wave of tariffs. The levies have the potential to not only deeply affect Americans but also America's closest trading partners. But even if the US were to fall into recession, it doesn't mean the rest of the world will. While the US has experienced 11 recessions since 1950, according to the NBER, the World Bank counts only five global recessions in the same time frame: 1975, 1982, 1991, 2009 and — of course — 2020.