Will Donald Trump’s Tariff War Trigger a Global Recession?

KAKALI DAS

Donald Trump’s tariff-driven recession could negatively impact global economies. Across the United States, a wave of panic buying has taken hold, as consumers fear a sharp rise in prices.

A particularly interesting list of products is expected to become significantly more expensive. Topping that list are avocados—80% of which are imported from Mexico. Coffee and tea, sourced mainly from Brazil, Colombia, Kenya, and also parts of India, are also set to see price hikes. Basic clothing and footwear, including popular apparel and shoe brands, will become costlier.

Furniture, cars, and car parts are next in line for increased prices. Even the device you’re using right now—be it a smartphone, tablet, or computer—is likely to carry a heavier price tag due to these tariffs.

It’s important to note that many of the devices we use today are manufactured in China, with components like batteries and other parts sourced from across the globe—not just the United States.

Panic buying is typically triggered by factors such as anticipated price hikes, fears of shortages, and the urge to stockpile essentials. It creates a self-fulfilling cycle: people rush to purchase goods, fearing rising prices and limited availability. As a result, supplies do run low and prices do, in fact, go up—just as they feared.

China has been the first to retaliate, announcing a 32% tariff on imports from the United States. In addition, Beijing’s Ministry of Commerce has imposed export controls on seven rare earth elements—critical components used in imaging technology and consumer electronics—which are typically exported to the US from China. This move effectively tightens restrictions on those exports.

Moreover, China is expected to file a formal complaint against the United States at the World Trade Organization (WTO). In a further escalation, Beijing has also revealed plans to add 16 US entities to its export control list.

In response, Trump mocked Beijing’s actions, claiming that China has mishandled the situation, is panicking, and won’t be able to sustain its retaliatory measures.

But where does the real fear of a recession stem from? Financial giant JPMorgan Chase has released a forecast warning of a potential GDP contraction due to the burden of escalating tariffs.The firm also anticipates a rise in the unemployment rate as economic pressures mount.

According to a Bloomberg report, HSBC has echoed similar concerns, stating that the recession narrative is gaining traction. The bank noted that the risk is already being factored into the markets, with current equity indicators reflecting a 40% probability of a recession by year-end.

Several other major financial institutions are also sounding the alarm. Barclays, Bank of America Global Research, Deutsche Bank, RBC Capital Markets, and UBS Global Wealth Management have all warned of a growing risk of recession if the tariffs remain in place.

With Donald Trump, there’s always an element of unpredictability. It’s unclear whether he’s actively negotiating with other countries behind the scenes or if some of these tariffs might be lifted in the coming weeks. However, based on the current scenario—if things remain as they are—we may indeed be staring down the barrel of a recession.

Meanwhile, the U.S. stock market has taken a significant hit. Wall Street had largely assumed that Trump was using tariffs as a negotiation tactic rather than as a long-term policy. Many believed it was more about political posturing than actual implementation—that he would eventually backtrack once he secured a favourable deal. But that assumption appears to have been wrong.

If Trump follows through with his tariff plans, stock prices may need to fall well beyond the current 10% drop from their all-time highs to truly reflect the looming threat of a global recession—and the potential impact it could have on U.S. companies.

In the meantime, the U.S. stock market has already wiped out $5 trillion in investor wealth during this period. According to the Bloomberg Dollar Spot Index, both dollar and euro dropped by 1%, and the British pound also experienced a decline.

Another intriguing development is the sharp decline in crude oil prices.Initially, this might seem like positive news—lower oil prices could help ease inflation and bring some relief to consumers. But the reality is more complex.

Brent Crude prices have dropped by around 8%, falling to approximately $64 per barrel. In response, OPEC nations—primarily the Gulf countries that are major oil producers—have decided to cut back on production in an effort to drive prices back up by limiting supply.

What this essentially indicates is an expectation that global demand for fuel is set to decline. When fuel demand drops—or is expected to drop—it usually signals a slowdown in global economic activity. In other words, it suggests that the world economy is cooling down or potentially shrinking, which is why this development is seen as bad news.

In response to these trends, Goldman Sachs has revised its crude oil forecast downward, slashing its price expectation by $5.

Trump has publicly urged the Federal Reserve—America’s equivalent of the Reserve Bank of India—to cut interest rates. Directly addressing Fed Chair Jerome Powell, he said, “He is always late, but he could now change his image quickly. Cut interest rates, Jerome. Stop playing politics!”

In contrast, Jerome Powell, speaking to journalists, stated that the Federal Reserve is in a strong position to wait for greater clarity before making any moves. He acknowledged that the newly announced tariffs were significantly larger than anticipated, but emphasized the Fed’s two core objectives: promoting price stability and maximizing employment. As such, a rate cut does not appear imminent.

Why is Donald Trump pushing for a rate cut? Because when prices rise, people naturally have less disposable income. Lowering interest rates can ease that pressure—it reduces borrowing costs, making it easier for both consumers and businesses to take out loans. This, in turn, puts a bit more money back into circulation and can stimulate spending.

Now, let’s take a moment to focus on the term “recession.” According to the International Monetary Fund (IMF), a recession is defined as a period of declining economic activity. It’s characterized by a sustained downturn—meaning the GDP is shrinking over a period of time, not just a temporary dip.

A widely accepted rule of thumb among analysts is that a country is considered to be in a recession if it experiences two consecutive quarters of economic decline. According to the International Monetary Fund (IMF), one of the most common triggers for a recession is a sudden spike in prices. When prices surge, consumer purchasing power declines, reducing overall demand in the economy.

Besides, governments often respond with fiscal policies aimed at controlling inflation, which can further impact growth. During such periods, financial market stability also comes under threat, leading to increased volatility in the stock market. Meanwhile, households and businesses may become overleveraged—taking on more debt than they can manage—and eventually struggle to repay it, further deepening the downturn.

These are the key reasons why many analysts closely monitoring the U.S. market are now predicting a recession within the year.

But what would happen if a recession does, in fact, occur in the United States? How would it affect the rest of the world?

It’s important to remember that the U.S. is the world’s largest consumer economy. Americans spend more money than consumers in any other country, making the U.S. a vital market for global exports. Many countries, including emerging economies, rely heavily on American demand to sell their products and sustain economic growth.

When the U.S. enters a recession, it tends to cool off the entire global economy. Think of the U.S. economy as the engine of a train pulling many carriages—the rest of the world. If that engine slows down or stalls, the entire train loses momentum.

If Americans reduce their spending, global companies—particularly those in China, Mexico, India, and across South Asia—will see a significant drop in sales. Moreover, if the U.S. stock market continues to decline by 10% or more, it sends shockwaves through other global markets, which often take cues from Wall Street. As the most influential financial market in the world, a sharp drop in the U.S. can lead to cascading sell-offs globally, as international investors begin withdrawing their capital.

If demand in the U.S. market declines, the global demand for oil is also likely to fall. This would negatively impact countries that rely heavily on crude oil exports. However, for a country like India—which is a major importer of oil—lower crude prices could be beneficial, helping to ease inflationary pressures.

On the flip side, global investors typically respond to economic uncertainty by pulling their money out of stock markets and moving it into safer assets like the U.S. dollar. This increased demand strengthens the dollar, making it more expensive relative to other currencies. As a result, the Indian rupee—and many other global currencies—could depreciate. This currency devaluation is a setback for countries like India that depend on exports, as it raises the cost of imported goods and disrupts trade balances.

Multinational companies operating here are likely to begin downsizing. We’ve witnessed this pattern in the past—job cuts often follow such economic shifts, and that’s an unfavourable development for us. Global confidence will inevitably suffer, prompting businesses to adopt a more cautious approach before making any investments. This, in turn, could have negative repercussions worldwide.

In short, if Trump’s proposed tariffs remain in place without any rollback, most analysts foresee a potential recession in the United States. Should that materialize, it would spell trouble for the American consumer—many of whom are being urged to endure the hardship, often by billionaires encouraging average citizens to brace themselves. Unfortunately, such a downturn would also inflict economic pain on the rest of the world.

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