The Heat of the Stove

Trump's Recession is here.

When Donald Trump took office this January the US economy had achieved an economic soft landing and was expanding. There was no cause prior to the election to think that would change anytime soon. Today we’re staring down the barrel of a recession, and while we can point to specific policies of this administration, the chaos and uncertainty of the administration itself is the root cause. The Trump administration’s actions towards regulatory regimes, its antagonism to historic trading partners, its refusal to establish any kind of competently run board or department to oversee an economic transition has sent business confidence into the ground. The policy most blamed for that uncertainty is Trump’s tariffs, which change minute to minute and make it impossible for businesses, consumers, and state and local government to plan. Economic paralysis has been the result.

The Recession at Home

At time of writing, the United States still has a blanket 10% global tariff until July 31, although its anybody’s guess if Trump will follow through with restoring his draconian tariff regime. A tariff of around 145% has already hit the first round of goods coming from China, and while Trump has committed to reducing this to 80%, this is unlikely to restore business confidence. Many businesses reliant on imports from China have such low margins that many are simply not buying, leading to the Port of Los Angeles experiencing a 35% reduction in volume. If these tariffs were eliminated tomorrow, it would take at least a month for loadings to return to normal, and another couple of weeks to a month for ships to reach American ports. That’s all assuming that Chinese shipyards and factories can rehire the people they’ve had to lay off in the interim and restart production at pre-tariff rates.

Unrelated to the blanket tariffs and the nation-specific tariffs, are import specific tariffs like the 25% tariff on imported vehicles, which translates to price hikes upwards of $12,000. While the administration promised that this would be a boon for domestic vehicle manufacturing, the aforementioned 10% global tariff, and China tariffs have already started a recession in American manufacturing because American factories depend on a complex global supply chain to make and source parts for final assembly, often known as an intermediate goods trade. Domestic manufacturers have not let up on their support for tariffs however, and are continuing to focus their ire on interest rates. However, interest rates are likely only going to climb in 2025 as the Federal Reserve struggles to control inflation created from tariff borne price spikes, and supply chain interruptions created by a contracting labor pool.

So far, all of this has been mostly theoretical to consumers, but over the next few weeks the drop off in imports for consumer goods will translate to higher prices and empty shelves. If you don’t work in retail or warehouses, you can tell how bad things are getting by just looking up in the aisles of big box retail outlets. Where you’d normally see overstock near the ceiling, often still shrink-wrapped or on pallets, you’ll start to see that stock dwindle, gradually reaching the shelves consumers can actually reach. Like a fuse on an economic bomb.

The full impact of a consumption recession will be felt soon, and by summer it will be inescapable. The Trump administration and the razor thin majority of Republicans in the 119th Congress are the least capable people imaginable to create an effective response to this recession. Because they’re ideologues steeped in a cult of personality they are unlikely to make any significant break from the MAGA movement’s deranged goals. Even if they did, they absolutely won’t break from Reaganomics after decades of partisan gerrymandering. If the Congressional GOP were to shelve Trump’s “Big Beautiful Bill” or try to tack on some economic relief, there’s no guaranteeing that it would even pass. Any effort to pull in Democrats and actually deal with the crisis would alienate the far-right Freedom Caucus, and if its a bailout heavy bill the Progressive Caucus would likely join in opposing passage.

Beyond the legislative drama, Trump and Elon Musk have gutted the administrative state, meaning there’s no way for the Federal government to effectively discharge and coordinate economic relief. So states will be largely left to solve this problem on their own, meaning with rare exception, most of the country will be facing a recession with high inflation and no relief in sight… and then things will get worse.

Global Double Dip

This initial economic crisis will eventually translate to a crisis on Wall Street, but more importantly it will accelerate economic trends (that I’ve written about before), and will more than likely create a double dip recession. Tech and Housing will be badly impacted by the contraction in capital, the reduction in imports from China, and of course the hit to construction due to Trump’s deportations. The reduction in demand within the US (who accounts for 13.2% of global import demand) will crater, bad news to every export driven economy on the planet. This would be bad on its own, but the capital crunch from the impending stock market crash and the supply shock will dry up public and private credit that would otherwise help weather the storm.

The Capital Crunch will be the killing blow for overleveraged economies, and particularly exporters who’s only way to recovering from a capital crunch is from the sale of goods to an economy that won’t be buying. Manufacturers like Germany and China, raw material exporters like Australia, and of course oil exporters like Russia and Saudi Arabia will be hit hard. Any country heavily intertwined with the US financial sector will find themselves falling into an financial black hole.

Recovery efforts will, frankly, be something of a pipe dream for most countries. The very structure of the global economy as we’ve known it since the end of the Cold War will break down on top of the consumption-led recession that will start this nightmare. With few exceptions, incumbent governments will fail to come up with effective recovery plans because those plans would fly in the face of everything they’ve known as normal economic policy for all of their lives. New leadership will be necessary in most nation-states even for there to be a hope of recovery. Some countries, particularly extremely centralized dictatorships, won’t be able to right the ship at all. With many people feeling hopeless and angry, political blowback will be inevitable. When that comes, and it what it looks like is a matter for another day.