Economists Say Trade War Makes US Recession Almost a Coin Flip

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(Bloomberg) — Forecasters anticipate President Donald Trump’s trade war will hit economic growth this year and next as tariffs push prices higher and put a dent in consumer spending.

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The US economy is set to expand 1.4% in 2025 and 1.5% in 2026, according to the latest Bloomberg survey of economists, compared with 2% and 1.9% in last month’s poll. The median respondent now sees a 45% chance of a downturn in the next 12 months, up from 30% in March.

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Trump’s decision to impose 145% tariffs on China — the third-largest US trading partner — and at least 10% duties on most other countries has many forecasters warning of a sharp economic slowdown ahead, with some predicting a recession this year. That’s in part due to sizable downward revisions to household demand, which accounts for about two-thirds of gross domestic product.

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“Stronger growth outcomes require a quicker resolution of the trade war and a renewal of confidence in US policymaking,” said Brett Ryan, senior US economist at Deutsche Bank AG.

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While the Trump administration has implemented a 90-day pause on some of the more punitive tariffs announced earlier this month, the country’s effective tariff rate now stands at almost 23% — the highest in more than a century — according to Bloomberg Economics. That’s taken a toll on consumer and business sentiment.

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The International Monetary Fund substantially lowered its forecasts for global growth this week, warning that if US tariffs stay in place they will have a ripple effect across the world.

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The Bloomberg survey showed economists now expect imports rose an annualized 19.2% in the first quarter as companies rushed to get goods into the US ahead of the higher duties. They also revised estimates lower through 2027. 

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Forecasters also see lower US exports through 2026. Countries including China imposed retaliatory tariffs on American goods, which will make importing those products more expensive and likely result in lower demand for them abroad.

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The Bureau of Economic Analysis will publish its initial estimate of first-quarter GDP on April 30.

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Economists see the Federal Reserve’s preferred inflation metric — the personal consumption expenditures price index — peaking at 3.2% at the end of 2025, up from the 2.7% estimate in the March survey. The core PCE inflation rate, which excludes food and energy, is expected to reach 3.3%.

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“Inflation is seen rising but doesn’t get as bad as in 2022,” said Comerica Bank economists Bill Adams and Waran Bhahirethan. “Since the tariff hikes, the Fed has been warning that the bar to cut rates is higher with inflation rising than during a conventional economic shock, which lowers both demand and prices.”

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The labor market is seen largely holding up in the near term, with forecasters expecting employers to add 72,000 and 100,000 payrolls per month on average this year and next, respectively. They see the unemployment rate climbing to 4.6% by the end of 2025, higher than the 4.3% rate expected in March.

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The survey was conducted April 18-23 and included responses from 82 economists.

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—With assistance from Alexander McIntyre and Sam Dodge.

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