The streets of New York are restless, and nowhere are the jitters louder than on Wall Street. Investors are on their heels, running to cover themselves from the losses supposedly caused by President Donald Trump’s aggressive trade policies. Yet, their cries are nowhere near enough to stop Trump from playing a high-stakes game of pause and play with tariffs.
Some economists are cautioning consumers that the US is teetering on the edge of a recession and inflation. But the current administration says all the talk, even if it dawns on reality, counts for nought point nought.
US Commerce Secretary Howard Lutnick believes an economic downturn would be a small price to pay for Making America Great Again. Treasury Secretary Scott Bessent sees the slowdown as a necessary “detox.” President Trump himself insists the economy is simply in a period of “transition.” So, who do we listen to? Well, it’s much better to wait and see.
Recession or brighter days ahead?
Historically, economic downturns have provided rare equal-opportunity events for the stock markets. But during those times, the country was about 70% sure of what was going to happen in months, even years, arguably. In the Trump 2.0 era, making predictions is almost akin to a fool’s errand.
In layperson’s terms, a recession is an economic situation in which a country’s total output, or gross domestic product (GDP), takes a meaningful nosedive. By the “rule of thumb,” two consecutive quarters of GDP contraction is an outright recession.
Thankfully, we are not there yet, largely because American consumers are still spending, and businesses, though frightened about the red flashes in the equities market, have not fully pulled back their investments.
But you would be naive not to see the cracks forming, also owing to the fact that economists are slashing their 2025 growth projections. If Trump follows through on his latest round of tariff threats, then we could see the economy finally tip over the edge in the coming months, if not weeks.
Tariffs are a dangerous game, even for President Trump
Donald Trump is as stubborn as wealthy businessmen come, and the White House is moving ahead with tariffs on a range of imports. What does that mean? Consumer prices will shoot up, and day-to-day spenders, alongside businesses, will choose to keep their funds or spend them somewhere else entirely.
According to the National Bureau of Economic Research (NBER), which determines when recessions begin and end, GDP is not the only measure of recession. The forum also watches unemployment, personal income (excluding government benefits), consumer spending, and industrial production.
A slow erosion across each of these metrics translates to a prolonged economic malaise, even if the government will say that it is technically not a recession. The economy could nosedive, much like it did in 2020 during the COVID-19 pandemic or in 2016 when growth stagnated, but nobody coined any of the situations as a formal recession.
At the start of the year, a recession was considered unlikely; we have the post-November elections market rally to thank for that. Unemployment was low, wages were rising, and inflation was easing back toward the Federal Reserve’s 2% target.
The Fed had even cut interest rates by a full percentage point since September as they looked forward to a “soft landing” from the inflationary spike of 2021-2022. Yet, it all seems to have come half circle; nobody is smiling when the words Trump markets are mentioned. All the gains investors had counted back then have all been wiped out.
If the economy is on the brink of collapsing, what are tariffs for?
Until recently, many had assumed Trump was using tariffs as leverage, threats designed to force the hand of foreign governments to address issues affecting America, like illegal immigration and drug trafficking. We believed that once he got the assurance of Canada and Mexico’s support, he would back down.
Safe to say perception is not reality, and Trump is convinced that he is really doing right by America. In a Sunday interview with Fox’s Sunday Morning Futures, Trump was asked about the possibility of a recession. “I hate to predict things like that,” he said before adding, “There is a period of transition because what we’re doing is very big.”
This “big” shift, as Trump describes it, is to bring manufacturing back to the US. But how much economic pain will Americans endure before that vision turns real? His heart may very well be in the right place, but that doesn’t stop the market bloodbath situation we are in now.
Economists like Jonathan Millar, a senior economist at Barclays, were fully convinced the administration would retreat if markets suffered. Now, he isn’t so sure. “We’re putting more weight on the possibility they wouldn’t,” he said. “We’re seeing a real change in rhetoric.”
Markets whiplash on ‘trade war’ threats
According to CNBC, stock futures tumbled Thursday morning after Trump took to Truth Social to announce potential 200% tariffs on all alcoholic products from the European Union. The move was a direct retaliation against the EU’s 50% tariff on American whiskey and bourbon. “This will be great for the Wine and Champagne businesses in the US,” Trump wrote.
As of 9:30 AM ET, futures tied to the S&P 500 had dropped by 0.2%, while Dow Jones futures shed 71 points. The Nasdaq dipped 0.4%, reversing the previous day’s gains garnered by two-day price surges by tech stocks like Nvidia and Palantir Technologies.
Investors may have a glimmer of hope in the name of better-than-expected inflation data. February’s producer price index, a measure of inflationary pressure, came in flat, contrary to expectations of an increase.
Still, not many people on Wall Street are not convinced the current positives will be present for the long term. President Trump is not listening to anyone; he even wants Canada to become a part of the US, something the Canadian government will obviously be opposed to. And what will be his answer? Tariffs.
Will it work in the end? Depends on who you ask. But investors aren’t buying the long game, they’re feeling the pain now.
This articles is written by : Nermeen Nabil Khear Abdelmalak
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By Nermeen Nabil Khear 