When President Trump took office, he stepped into an economic scene that was thriving by traditional standards. Wages were climbing, consumer confidence was on the upswing, and corporate profits reflected a healthy economy. Unemployment was notably low, and though inflation was on the higher side, it was on a downward trajectory.
However, shortly after Trump began his tenure, the economic outlook seemed to dim. Both business and consumer confidence indices took a nosedive. The stock market was experiencing turbulent swings reminiscent of a roller-coaster, and initial data suggested an uptick in layoffs. Economic forecasters started revising growth projections for the year, with some even speculating that the U.S. GDP might contract in the first quarter.
Some analysts have raised alarms about a possible recession or a spike in inflation—or worse, a dreaded mix known as “stagflation.” Despite these concerns, many economists believe a slowdown is more plausible than an outright decline.
Nevertheless, the shift in economic outlook is notable, especially since it appears largely driven by the policies associated with Trump’s administration and the uncertainty they generate. The introduction of tariffs, paired with expected retaliations from trade partners, is likely to drive up costs and curtail growth. Planned reductions in federal jobs might elevate unemployment and lead government employees and contractors to reduce spending as they await their fate. Furthermore, industries dependent on immigrant labor, like construction and hospitality, might see costs rise due to potential deportations.
“If the economy was initially on solid ground, recent developments have certainly made it a bit shakier,” observed Donald Rissmiller, the chief economist at Strategas, a research firm.
Despite the challenges, the U.S. economy has demonstrated resilience over the years, and there are aspects of Trump’s agenda that might encourage growth. Business communities have been enthusiastic about Republican initiatives to cut taxes and deregulate. Theoretically, streamlining government operations could boost overall economic productivity.
Yet, the administration’s economic strategy seems to be marked more by chaos than clarity, with tariffs being announced only to be put on hold and governmental layoffs followed by rehires. This lack of consistent policy planning has left some experts like Michael R. Strain from the American Enterprise Institute critical of the potential negative impacts of Trump’s trade and immigration policies.
“What President Trump has proposed won’t necessarily trigger a recession,” he added. “But it will slow down economic growth, take money out of consumers’ pockets, escalate unemployment, cost jobs, and make American businesses less competitive.”
The idea that Trump’s policies could potentially lead to a recession isn’t far-fetched. Economic projections suggest his tariffs alone might reduce GDP growth by a full percentage point this year, cutting the 2% growth forecast in half.
Economists argue that Trump’s campaign promise to deport millions of immigrants could be more damaging than tariffs, especially given the demand for labor in sectors like construction and healthcare.
Shrinking the federal workforce—an effort led by figures like Elon Musk—might result in significant job losses for federal employees and contractors. This could initiate a ripple effect: job losses lead to decreased consumer spending, posing challenges for businesses that might then need to trim costs, causing more layoffs.
Ordinarily, the Federal Reserve would counteract such trends by slashing interest rates to stimulate the economy. However, if tariffs contribute to rising prices, there would be hesitancy to reduce rates due to fears of fueling inflation.
“It’s like a death by a thousand paper cuts,” explained Jay Bryson, the chief economist for Wells Fargo. “Individually, these changes aren’t enough to cause a recession, but collectively, they could.”
While the probability of this scenario is seen as relatively low by most economists, delays and setbacks in Trump’s tariff implementations and deportation strategies have mitigated some immediate impacts. For instance, he recently postponed tariffs on imports from Mexico and Canada. Additionally, some intended federal job cuts have faced legal battles.
These delays and reversals might lower the immediate chances of a recession. However, they underscore a prolonged period of uncertainty, causing businesses to delay investments and hiring.
“If clarity isn’t reached by later this year, economic uncertainty can halt progress,” noted Nancy Lazar, chief global economist at Piper Sandler. “Business confidence dwindles, hiring stalls, and capital expenditure freezes.”
In the long-term, even if Trump’s policies don’t trigger a recession, they could leave enduring marks. Reduced immigration means a smaller workforce as the native population ages. Continued trade barriers may slowly dampen growth—less a dramatic event and more a chronic ailment.
“It’s less about a catastrophic economic crash and more like the economy picking up a persistent bad habit,” compared Michael Madowitz, an economist at the Roosevelt Institute.
For certain regions and demographic groups, these effects could be stark. Veterans, who disproportionately occupy federal jobs, might feel the pinch from layoffs more acutely. Regions heavily reliant on government jobs, such as Washington D.C., might experience housing market slumps.
“It’ll definitely hit some communities harder,” observed Gbenga Ajilore, chief economist for the Center on Budget and Policy Priorities. “Viewing the economy at a high level often misses these critical underlying details.”
