The U.S. economy may be headed toward a recession. This potential economic downturn would not be the result of external shocks or unforeseen crises, but a self-inflicted wound caused by the Trump administration’s erratic trade policy.
In the first quarter of 2025, the economy shrank at an annualized rate of 0.3 percent. While modest, this contraction was a flashing red light of a need for attention. It marked the first quarterly decline in years and came amid mounting signs of trouble across multiple economic indicators. From weakening consumer confidence to rising inflation expectations, the trends were consistent.
Another troublesome sign came this week from the University of Michigan, which reported that consumer sentiment declined again this month, and is now down nearly 30 percent since President Donald Trump took office.
According to Bloomberg, consumer sentiment is now at its second-lowest level on record.
Even more alarming: inflation expectations among the consumer sentiment survey respondents soared to multi-decade highs. The reason for this was tariffs. Nearly 75 percent of respondents in the Michigan survey cited tariffs as a significant concern.
The recent 90-day tariff truce between the U.S. and China, which temporarily lowers tariffs on both sides offers a brief and partial reprieve but it is not a solution to the current situation. Even with reductions, U.S. tariffs on Chinese goods remain high at 30 percent, and the threat of future hikes still looms.
READ: Recession warning signs are flashing (March 30, 2025)
In fact, the damage is already rippling through the economy.
Walmart, the world’s largest retailer and a bellwether for American consumption patterns, announced this week that it will raise prices to offset the pressure from tariffs. “[We] aren’t able to absorb all the pressure given the reality of narrow retail margins,” said CEO Doug McMillon speaking to investors. “The higher tariffs will result in higher prices.”
Walmart’s statement was a warning signal of things to come
Retailers operate on thin margins. When import costs spike due to tariffs, those costs get passed down the supply chain. The end result? American families will have to pay more for everyday necessities, from groceries to electronics. As prices rise, purchasing power erodes, and consumer spending, which makes up nearly 70 percent of U.S. GDP, begins to contract.
The fallout doesn’t stop at the checkout aisle.
Businesses, especially small and mid-sized ones, are facing growing uncertainty over future input costs and export conditions. Capital investment is already slowing. Entrepreneurs and investors, unsure of where the policy winds will blow next, are choosing to wait it out rather than to risk millions on expansion plans or new hires.
The hallmark of the Trump administration’s economic policy to date has been unpredictability. This is unfortunate because solid economies thrive on consistency, planning, and predictable long-term investment outcomes. When policies shift on a whim — when tariffs are levied and lifted in the same breath — it becomes impossible for businesses to plan, invest, or grow. We’re already witnessing the consequences.
Read more columns by Frank F. Islam
A chorus of respected economists and business leaders has been sounding the alarm. JPMorgan Chase CEO Jamie Dimon recently said that a U.S. recession remains a possibility, even after the temporary reduction of trade tensions with China.
To be clear, this is not a crisis driven by weak economic fundamentals. The U.S. has strong underlying indicators: low unemployment, healthy corporate earnings, and a robust innovation ecosystem. But even the strongest foundation can be eroded by repeated policy missteps. In this case, it is Trump’s aggressive tariff regime, combined with a pattern of erratic governance, that is steering the country toward avoidable economic pain.
This is ironic given that Trump’s return to the White House last November was largely built on the premise of his economic competence and a promise to make things better for the working class. To date he has neither demonstrated that competence nor improved the conditions of the working class.
Because of that, public sentiment is shifting. According to a recent Echelon Insights poll, 54 percent of Americans now disapprove of Trump’s handling of the economy.
Unless the administration pivots away from its current punitive, protectionist approach and adopts a more stable, globally cooperative economic policy, the U.S. may enter a recession. The current trajectory, marked by price hikes, declining consumer confidence, and investment hesitancy, is unsustainable.
Frank F. Islam: The perils of Trump’s proposed tariff trade war (February 6, 2025)
The administration still has time to change course. It could reinstate predictable trade frameworks, consult with business leaders on supply chain resilience, and roll back harmful tariffs that serve no strategic purpose. That would send a strong signal to markets, encourage investment, restore consumer confidence, and provide the foundation for economic improvement.
But, if the current policy direction holds, the American economy could slide into recession. If it does, the historians will write that it was a recession that was not only predictable but also self-inflicted and avoidable.
(Frank F. Islam is an Entrepreneur, Civic Leader, and thought leader based in Washington DC. The views expressed here are personal)