President Donald Trump’s still-developing trade war is causing jitters on Wall Street and in corporate boardrooms as investors and decision-makers face the growing — if still uncertain — possibility of a recession, potentially sparked by the administration’s pursuit of punishing new tariffs, amplified by significant government layoffs and mass deportations.
Asked about the likelihood of a recession this year by Maria Bartiromo of Fox News in a segment that aired Sunday, Trump declined to rule it out and instead talked up the magnitude of the changes he is making in how the U.S. economy operates.
“I hate to predict things like that,” Trump said. “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 think it should be great for us.”
More trouble ahead? Even before taking office, Trump announced he would be imposing new tariffs on goods in imported from China, Canada and Mexico, the country’s largest trade partners. He has followed through on the threat against China, imposing a 20% tariff on imports in two installments. But most of his threatened 25% tariffs against Canada and Mexico have been delayed twice and are now scheduled to take effect on April 2, along with a new set of “reciprocal tariffs” on all other trading partners, including the European Union.
In the Fox interview, Bartiromo noted that business leaders crave certainty and asked if there will be “clarity” on trade policy after April 2, but Trump was less than clear about his plans. “We may go up with some tariffs. It depends,” he said. “We may go up. I don’t think we’ll go down, or we may go up.”
Trump pushed back against the idea that decision-makers are having difficulties in the current topsy-turvy economic environment, and then reiterated his long-held grievances over trade issues. “They have plenty of clarity,” he said. “They just use that. That’s almost a sound bite. They always say that we want clarity. Look, our country has been ripped off for many decades, for many, many decades, and we’re not going to be ripped off anymore.”
White House economic adviser Kevin Hassett defended Trump’s approach Monday, but he admitted that uncertainty around tariff policy could weigh on the economy in the first quarter of the year, even if that period of uncertainty would be followed by a great boom. “I think that what’s going to happen is the first quarter is going to squeak into the positive category,” he told CNBC, referring to economic growth, “and then the second quarter is going to take off as everybody sees the reality of the tax cuts.”
Another key member of the administration, Treasury Secretary Scott Bessent, was less optimistic last week when he told CNBC that he could see the economy “starting to roll a bit” as it goes through what he said was a necessary “detox period” of lower government spending.
Investors not pleased: Traders on Wall Street seemed to be listening more to Trump and Bessent than Hassett Monday, sending the S&P 500 down by 2.7%, with the Dow Jones Industrial Average falling 2.1%, or nearly 900 points. The S&P 500 index has now fallen 5% in just nine days, the fastest decline of that size since the early days of the pandemic in February 2020, Bloomberg reports.
Part of the problem is the way Trump has unveiled and teased his threatened trade war. “The talk of tariffs is, in a lot of ways, worse than the implementation of them,” said David Bahnsen, chief investment officer at the Bahnsen Group, per CNN. “The tariff talk, reversal, speculation, and chaos only fosters uncertainty.” That uncertainty is starting to have real effects on the economy, raising the odds that damage could be done, and for an unknown length of time.
Analysts at JPMorgan Chase said there is now “materially higher risk of a global recession this year due to extreme U.S. policies,” per The New York Times. They raised their probability of a downturn to 40%.
Ed Yardeni, president of Yardeni Research, said investors appear to be reconsidering the wisdom of the new administration’s agenda. “The stock market is losing its confidence in the Trump 2.0 policies,” he told CNN.