The likelihood of the United States slipping into a recession in 2025 has surged as President Donald Trump intensifies his tariff war, using trade restrictions as a key bargaining tool in international negotiations.
According to Alec Kersman, managing director and head of Asia-Pacific at Pimco, the probability of a U.S. recession this year has jumped to 35%, up from just 15% in December 2024. Speaking at CNBC’s CONVERGE LIVE event in Singapore, Kersman attributed the heightened risk to the economic ripple effects of Trump’s tariff policies and the retaliatory measures taken by key U.S. trading partners.
Despite this, Trump remains adamant that tariffs are necessary to protect American industries, even as analysts warn that prolonged trade disputes could push the U.S. economy into a downturn.
Economic Growth Expected to Slow, but Not Collapse
While recession fears have intensified, Kersman emphasized that Pimco’s base case scenario still predicts U.S. economic growth of 1% to 1.5% in 2025. This marks a significant slowdown but stops short of a complete contraction.
“It’s quite a significant decrease,” Kersman noted, pointing to the impact of tariffs on global trade flows.
Some analysts, however, argue that domestic consumption could help offset some of the economic slowdown. Kamal Bhatia, president and CEO of Principal Asset Management, said that nationalistic spending patterns triggered by tariffs could encourage more Americans to buy domestically produced goods, boosting internal economic activity.
Tariffs Fuel Trade Retaliation, Raising Global Economic Uncertainty
Trump has increasingly weaponized tariffs as a central pillar of his economic strategy, believing that they give the U.S. leverage over trading partners. This approach has deepened trade tensions worldwide, with countries now prepared to retaliate rather than concede.
One of the latest escalations occurred Tuesday when Trump announced plans to double tariffs on Canadian steel and aluminum imports to 50%. The move was a direct response to Ontario Premier Doug Ford’s 25% surcharge on electricity exports to the U.S. Trump’s action sent ripples through the North American market, with Canadian officials threatening countermeasures if the tariff increase was implemented.
However, following last-minute negotiations, Ford suspended the surcharge after striking a deal with U.S. Commerce Secretary Howard Lutnick to restart trade discussions. In response, Trump temporarily withdrew his tariff hike plans—a sign that he is willing to adjust his tactics when faced with strong pushback.
Yet, the bigger picture suggests that the tariff war is far from over. Several other key U.S. trading partners, including China and the European Union, have shown their readiness to retaliate, signaling that Trump’s aggressive stance will continue to provoke further economic conflicts.
China, which remains a primary target of Trump’s trade policies, has slapped tariffs on American agricultural products and key manufacturing components in retaliation for U.S. restrictions. Despite multiple rounds of negotiations, the two countries remain locked in a prolonged economic standoff. The European Union has also warned of countermeasures if Trump proceeds with his planned tariffs on European cars and technology products. European leaders have stressed that the U.S. should not expect unilateral compliance, and the EU is prepared to respond with tariffs on American goods, including whiskey, motorcycles, and textiles.
Mexico, another major U.S. trade partner, has previously imposed retaliatory tariffs on American pork, cheese, and bourbon in response to Trump’s earlier steel and aluminum duties. Mexican officials have hinted that if new trade restrictions emerge, they will not hesitate to retaliate again.
The ongoing tariff battles have sparked uncertainty in global markets, with businesses scrambling to adjust supply chains and hedge against potential new trade restrictions. Many industries—particularly manufacturing, automotive, and agriculture—have already felt the impact of rising costs and disrupted trade flows.
Bhatia emphasized that tariffs are not just affecting direct trade but also reshaping geopolitical dynamics.
“We’ve had very muted geopolitics in investing for a long period of time, and clearly tariffs are changing that,” he noted.
Trump’s aggressive trade policies have also led to concerns over economic insularity, with some warning that the U.S. risks isolating itself from global markets. Bhatia pointed out that trade wars could encourage more localized economies, where countries focus on domestic production and reduce reliance on international trade.
“Spurts of patriotism translate into people spending more locally in their own nation,” he said.
Given that consumer spending accounts for around two-thirds of U.S. GDP, an increase in domestic expenditure resulting from trade restrictions could prop up economic growth—but only if inflation and cost increases do not outpace consumer purchasing power.
“There is a high probability that a tariff-induced increase in domestic expenditure will cause the country’s GDP to do better than you anticipate,” Bhatia added.
No End in Sight for the Tariff War
With Trump doubling down on tariffs as a bargaining tool, many experts believe that the global trade war is set to continue throughout 2025 and beyond. As more countries push back with retaliatory tariffs, the risk of economic fragmentation and slower global trade growth increases.
For now, analysts say that the most immediate risks include inflationary pressures, supply chain disruptions, and slowing economic activity—all of which could contribute to the growing possibility of a U.S. recession by 2025.
