Donald Trump has not ruled out a recession in the United States this year, saying the world’s largest economy is in “transition” through his trade war.
Financial markets have been spooked by the implications of his early trade fights involving the country’s nearest partners Canada and Mexico through on-off tariffs of up to 25%.
China has also been targeted and the European Union could be next, from 2 April, when Mr Trump has promised to ramp up his “America first” ambitions.
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The recession question first cropped up a week ago when a closely-watched economic indicator suggested the US economy was shrinking at its fastest pace since the COVID pandemic.
The Atlanta Federal Reserve’s GDPNow model showed activity shrinking in the current first quarter, even before the president took office as the threat of tariffs loomed large.
Other indicators show signs for concern, with the US unemployment rate ticking up in February to 4.1% according to official data on Friday.
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The stock market sell-off of last week left the broad S&P 500 trading at near six-month lows.
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The dollar has suffered too, with sterling and the euro gaining four cents since the end of February.
They are hardly the headlines Mr Trump wants.
He was asked directly in a Fox News interview on Sunday whether he was expecting a recession.
Crucially, he did not deny the possibility in his reply when he said: “I hate to predict things like that. 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.”
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“It will be great for us”, he said of the tariff regime’s domestic impact which, he claims, will force more companies to hire more workers in the United States.
Both Canada and Mexico have been given two temporary reprieves, with companies operating cross-border complaining of chaos in terms of red tape and a lack of clarity on future tariffs.
Asked by Fox if he could give businesses some reassurance, Mr Trump added: “Well, I think so. But, you know, the tariffs could go up as time goes by and they may go up. And you know, I don’t know if it’s predictability, I think…”.
When told by the interviewer Maria Bartiromo that those remarks were not providing clarity, he responded: “No, I think they say that, you know, it sounds good to say. But for years, the globalists, the big globalists have been ripping off the United States; they’ve been taking money away from the United States. And all we’re doing is getting some of it back. And we’re going to treat our country fairly.”
The markets will study carefully the key US economic data ahead for signs of a protracted slowdown.
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The country does not rely on the common international definition of a recession – two consecutive quarters of negative growth.
In the United States, only an independent committee of economists has the power to declare a recession.
Its deliberations expand beyond pure growth to include other facets such as the state of the employment market.
