President Trump is not only causing tensions within NATO and showing support for Russia in the conflict with Ukraine but is also making decisions that could harm the strong US economy.
Some economic experts are even using the term ‘Trumpcession’ to describe a potential economic decline caused by actions taken by the White House.
Although the US economy is robust enough to avoid a complete recession, a significant slowdown is likely to occur as a result of these actions.
To the economic instability created by upending geopolitics as we’ve known it, Trump has added the huge uncertainty of his on-again, off-again tariff wars, part of his predilection for economic policies which will weaken growth, raise prices, increase unemployment and hit stock markets.
On Tuesday, he raised tariffs on Canadian steel and aluminium by an additional 25 per cent to 50 per cent after the government of Ontario, the country’s second biggest province, announced a 25 per cent tariff on electricity exports to its southern neighbour.
And stung by Ontario’s threat to cut off its electricity supply to New York, Michigan and Minnesota altogether if Washington imposed any more tariffs, Trump said he would declare ‘a national emergency on electricity’, threatened to ‘permanently shut down’ the Canadian auto sector and said the only thing that would make him withdraw his tariffs is if Canada agreed to become the US’s 51st state.
None of this has gone down well with investors, who have been spooked by the chaos in US economic and foreign policy, a product of Trump’s so-called ‘madman’ strategy, one that was designed to discombobulate everybody but which increasingly looks, well, just mad.
Just about every Wall Street forecaster is downgrading their estimates of US economic growth in 2025, and all the gains US stock markets made in the wake of Trump’s election last November — the famous ‘Trump Bump’ — have already been erased (and more) in the past few weeks.
Shares in Elon Musk’s Tesla were especially hard hit.
US President Donald Trump, joined by Commerce Secretary Howard Lutnick, holds up his original executive order imposing 25 per cent tariffs on steel imports – which he today doubled to 50 per cent on Canadian steel and aluminium
Ontario Premier Doug Ford retaliated and has threatened to cut off its electricity supply to New York, Michigan and Minnesota
The value of his electric car company has halved — a spectacular fall of $800billion — since it peaked in December as consumers rebelled against his cavalier approach to slashing US federal spending as Trump’s cost-cutter-in-chief and his support for Europe’s hard-Right parties by boycotting his cars.
But the stock market sell-off was worldwide, including shares listed in Britain, as the dire implications for the global economy of Trump’s tariff wars set in.
The mighty US dollar is experiencing its worst period of weakness, outside the Covid pandemic, since the great financial crash of 2008. The dollar has suffered its steepest fall against the euro in the 21st century as investors dump greenbacks because of the erratic nature of the Trump administration and growing recessionary fears.
Investor confidence has also taken a hit since Trump returned to power just seven weeks ago. Only one in five investors is now optimistic about the economy, the lowest since the pandemic. One technical index which measures US economic uncertainty has recorded its biggest spike since the aftermath of 9/11 almost a quarter of a century ago.
America’s fabled labour market is also weakening. The rate of job creation has slowed markedly compared with only a few months ago.
The unemployment rate (when you include those so discouraged they’ve stopped looking for work) is 8 per cent, the highest since the pandemic. America’s massive leisure and hospitality sectors are shedding labour fast as consumers, uncertain about the future, desist from non-essential spending.
The Trump administration’s response to growing fears of a recession has been almost as chaotic as the economic policies which have fuelled them.
In his speech to Congress on March 4, the President warned Americans to expect a ‘little [economic] disturbance’ in what he described as a ‘period of transition’. That was enough to ramp up recessionary talk.
Traders on the New York Stock Exchange today saw shares diving because of Trump’s ‘tariff wars’
Nor did he do anything to counter that with some comforting words of reassurance when in TV interviews at the weekend he refused to rule out, twice, the possibility of a recession, even as his Commerce Secretary, Howard Lutnick, was on another TV channel stating baldly: ‘There is going to be no recession in America.’
The mixed signals simply served to spark another sell-off when the markets opened on Monday.
At first Trump’s aides and media cheerleaders (taking a leaf out of the Keir Starmer-Rachel Reeves book of blaming predecessors) tried to attach the growing litany of bad economic news to the previous administration.
It didn’t wash. Whatever the hapless Joe Biden’s shortcomings, bequeathing Trump an ailing economy was not one of them.
Last year, US GDP grew by almost 3 per cent (by far the best in the G7 group of major market economies), inflation was 3 per cent and unemployment 4 per cent. The unravelling of this robust economic performance, has happened entirely on Trump’s watch.
The latest wheeze from Team Trump is to claim it’s all intentional — that some setbacks are inevitable as the administration undertakes a fundamental rewiring of the economy to ensure future prosperity.
This is the line now being peddled by Treasury Secretary Scott Bessent, a successful Wall Street financier and supposedly one of the grown-ups in the Trump administration.
He speaks of an essential ‘detox period’ as resources are moved from the public to the private sector. This is the man who once assured us tariffs would just be a negotiating tactic. It is all so much hokum.
The ‘fundamental rewiring’ of the US economy amounts to no more than a series of on-off tariff announcements which are sowing economic instability and dismaying friendly allies such as Canada and Mexico (and soon, no doubt, Europe). On what is supposed to be its core economic policy, the Trump administration is all over the place.
The president’s tariffs are not just damaging America’s friends. As the economy slows they will make it more difficult for the Federal Reserve to respond by cutting interest rates — because tariffs will add to US prices and the Fed has a mandate to get inflation down to around 2 per cent. It has been nudging upwards these past five months.
Surveys show that US consumers already fear inflation is heading for 6 per cent this year. That’s probably over-pessimistic. But they know, even if Trump doesn’t, that tariffs mean rising grocery bills at the supermarket checkout and higher energy prices at the petrol pumps and in the home.
But that’s not all. Trump plans not just to renew his 2017 tax cuts (which are shortly due to expire) but to add further cuts, such as no tax on tips, overtime or pensions, plus a major reduction in corporation tax.
Thus, at a time when the federal budget deficit is already nudging 7 per cent of GDP, despite years of economic growth, and the US national debt is already over $36trillion — a staggering 124 per cent of GDP — Trump will increase debt and the deficit. Musk’s cuts to federal spending will make only a marginal difference.
So, to the chaos of price-raising tariffs we can add the inflationary incontinence of fiscal policy. Both will hamper the Fed’s ability to cut interest rates in the year ahead, even as the economy stutters. The falling dollar will only add to the inflationary pressures.
This matters far beyond America’s shores. We’ve already seen that, when US stocks markets slide, so do those in London, Paris and Berlin. The US economy has been the one bright spot in a lacklustre G7, where stagnation has been the norm.
If the US economy is also to join the ranks of the low-growth or no-growth economies then we will all suffer, nowhere more so than Britain.
America is the single biggest national market for British business investment and exports. It used to be said that when America caught a cold, Britain was at risk of pneumonia.
Given the diversity of our export markets, that is no longer the case.
Even so, if the US economy slows or, worse, dips into recession, Britain will not be far behind — and Starmer’s much touted (but so far elusive) ambitions for higher growth will be shattered.
The stakes could not be higher — for Britain as much as for America.
