At 12:01 AM on March 4, 2025, President Donald Trump launched the largest trade war in modern US history, imposing tariffs of 25% on Mexican and Canadian imports and doubling duties on Chinese goods to 20%.
While some of the tariffs on Canada and Mexico have been eased, tariffs on China remain in place.
The reactions have been grim. US consumer sentiment has dropped sharply, GDP estimates have been revised downwards and the markets are in free fall.
Economists have been sounding the alarms for a while now. This trade war will most definitely cause the economy to slow down, raising the risk of a recession.
On top of that, the country is more polarized than ever. A variety of theories regarding Trump’s ultimate plan have been emerging.
Some are saying that all of this is part of a deeper strategy to reshape the US economy through deliberate short-term pain.
Could this really be the case?
The biggest trade war in over a century
Trump has long promoted tariffs as a tool to force domestic industrial revival.
But the new tariffs dwarf those of 2018-2019 and even surpass the Smoot-Hawley Act of 1930, which is widely blamed for deepening the Great Depression.
Estimates show that $1.3 trillion in imports could be affected. That is 42% of total US goods trade.
The administration is intentionally dismantling global supply chains that American industries have relied on for decades.
In addition, tariffs increase input prices for manufacturers, making cars, electronics, industrial equipment, and food more expensive.
Auto industry experts have already warned that new vehicle prices will rise by at least $12,000.
The retail sector is preparing for broad-based price hikes, with the Tax Foundation estimating that tariffs will cost US households an additional $1,072 annually in 2025.
The trade deficit is surging. In January, it jumped 25% as businesses rushed to import goods before tariffs took effect.
This front-loading distorts economic data, creating temporary demand spikes that will soon reverse, further depressing growth.
The situation is rapidly escalating as trading partners retaliate. Canada imposed massive counter-tariffs, with threats to restrict nickel exports, which is a key input in US manufacturing.
China announced tariffs on $22 billion of US agricultural goods, including soybeans, wheat, and pork.
Mexico has promised countermeasures, likely targeting US farming and industrial exports.
The European Union is next, with Trump threatening 25% tariffs on EU car imports, further escalating tensions.
These retaliatory measures will not only reduce US exports but also weaken business confidence, creating a knock-on effect of slower investment, declining corporate profits, and rising unemployment.
Markets and consumers hate uncertainty
Financial markets are reacting to the instability. The S&P 500 has erased its post-election gains, and volatility is increasing across all asset classes.
Investors are struggling to price in the economic impact of tariffs, especially as Trump’s last-minute policy shifts create uncertainty about the long-term business climate.
The S&P 500 fell by 6% over the past month, the NASDAQ 8%, and the Atlanta Fed slashed its Q1 GDP forecast from +3.9% to -2.8%.
The Federal Reserve is now facing a policy dilemma. Tariff-driven inflation could force the Fed to keep interest rates high, but a slowing economy may require monetary easing.
A premature rate cut could fuel inflation, while keeping rates too high could exacerbate the downturn.
This uncertainty is already chilling business investment, with factory orders shrinking and corporate spending plans being scaled back.
Recent data from the Institute for Supply Management (ISM) shows that US factory activity has stagnated, with new orders and employment contracting.
Supply chain disruptions caused by tariffs are raising input costs for businesses faster than they can pass them on to consumers, further squeezing profit margins.
Many companies are holding off on expansion plans, waiting for clarity on trade policy and interest rates.
Meanwhile, the administration is making deep cuts to federal employment. Over 250,000 government workers have lost their jobs in a few weeks.
That is 10% of the federal workforce. The government’s role in the economy is being intentionally reduced, a core tenet of Trump’s economic approach.
Is this an orchestrated slowdown?
Trump insists that his tariffs will “Make America Rich Again,” but many economists argue that the administration is deliberately engineering an economic slowdown to reshape the US economy.
One major reason for this approach is political timing. If a recession occurs in 2025 or 2026, the administration could attempt a well-timed recovery before the 2028 election, allowing Republicans to claim credit for a turnaround.
A downturn could also force the Federal Reserve to cut interest rates, benefiting real estate, private equity, and debt-heavy industries that thrive on cheap borrowing. This could resonate with the younger generation of voters.
Beyond electoral strategy, the administration is prioritizing economic nationalism over market efficiency.
By breaking global supply chains and making foreign imports prohibitively expensive, Trump is attempting to force US companies to reshore production, even if it leads to higher costs and lower productivity.
Trump’s economic philosophy is reminiscent of historical autarky strategies, from North Korea’s Juche self-reliance doctrine to Cold War-era protectionism.
The goal appears to be economic self-sufficiency, even at the cost of immediate prosperity.
The risks and what comes next
In the short term, rising consumer prices, business uncertainty, and declining investment could stall economic growth.
Inflationary pressure from tariffs is already driving up costs for essential goods, and corporations are delaying expansion plans due to policy unpredictability.
A full-scale trade war remains a serious possibility, with Canada, Mexico, China, and the EU all preparing retaliatory measures.
Markets are also reacting negatively, with the S&P 500 falling 6% over the past month, the NASDAQ down 8%, and the Atlanta Fed slashing its Q1 GDP forecast from +3.9% to -2.8%.
If trade disruptions persist beyond 2026, the consequences could be even more severe.
Global confidence in the US dollar could erode, with major economies seeking alternatives for trade settlements, weakening US financial dominance.
The administration’s reshoring strategy could fail to deliver sustainable manufacturing growth, leading to deindustrialization rather than economic revival.
If tariffs drive inflation without improving domestic production, the US could face a prolonged period of stagnation and rising costs.
Three outcomes remain possible. In the worst case, spiraling costs and trade breakdowns could push the economy into a deep recession, resembling the 1970s stagflation crisis.
A muddled middle scenario could see continued turbulence, but with gradual adjustments preventing outright collapse.
The best-case outcome, in which forced reshoring revitalizes domestic production, remains highly uncertain given historical precedent.
The US is now locked in a high-stakes economic experiment with no clear outcome. The cost of failure is extremely high at the moment.
Source : https://invezz.com/news/2025/03/10/trumpcession-the-real-reasons-behind-trumps-trade-war-and-what-comes-next/
