The Trump administration followed through on its plan to enact substantial tariffs on foreign products in February, with many efforts including increasing the purchase of American-produced goods and boosting American jobs, according to the Associated Press.
The administration began by targeting Canada, Mexico and China but has since charged other nations. The administration announced a 10% baseline tariff on all imported goods in April, the AP stated in a timeline. Many countries have retaliated against the U.S. with retributive tariffs on American exports.
The trade war has raised concerns for many economists. Some worry it could lead to a recession in the U.S. economy.
Associate Professor of Economics at Ohio University, Roberto Duncan, argued the possibility of a recession is a valid concern for Americans to have.
Duncan said if the tariff shock is both large and persistent, there are three main mechanisms at play. He said the heightened costs of imported materials will force companies to cut production. Higher costs will also reduce the consumers’ purchasing power, thus lowering consumption and declining gross domestic product, or GDP.
Duncan also argued the trade war introduces much uncertainty, which weighs on consumer spending and business investment, furthering a decline in GDP.
Duncan said the tariffs have caused household uncertainty regarding future prices. A period of uncertainty complicates budgeting and reduces spending for American consumers, also affecting businesses similarly.
“Firms are reluctant to invest, preferring to wait and see what the final, post-tariff prices will be for the imported materials or machinery they need,” Duncan said via email. “This ‘wait-and-see’ behavior is slowing down business investment as well.”
U.S. negotiations with foreign nations have led to much compromise and a lowering of tariffs since February, according to the AP timeline. As tensions between the U.S. and foreign countries decrease, the fear of a recession is diminishing.
JP Morgan previously said there was a 60% chance of a recession, now claiming a 40% chance.
“I don’t believe this will lead to a deep recession like the ones we experienced in 2007–2009 or 2020, assuming other conditions remain stable,” Duncan said via email. “Based on what we know now, the most likely outcome is either a mild recession (i.e., a small contraction in growth) or a period of slower-than-normal economic growth.”
If a recession occurs, although the impact is suspected to be minimal, it could reduce public funding to OU and slightly raise local prices in Athens, Duncan added. Both impacts would remain modest and limited in scope.
Duncan recommended a wait-and-see approach for consumers at this time. This means reducing and delaying consumption, as well as increasing savings as a precautionary move, a rational decision Duncan believes will allow the economy time to adjust and fluctuate.
President Donald Trump has repeatedly utilized executive orders to impose these tariffs on foreign nations. The administration invoked the International Emergency Economic Powers Act to justify the levying of tariffs on foreign countries, the AP timeline stated. Many opponents challenge these executive orders, claiming they exceed the scope of executive power.
A New York-based U.S. Court of International Trade ruled on the matter Wednesday, effectively blocking Trump from imposing sweeping tariffs. The three-judge panel argued Trump’s tariffs exceeded the authority granted to the president under the IEEPA, according to the Associated Press.
A federal appeals court Thursday ruled the Trump administration can continue to collect import taxes for now, according to the AP. The appeal came after the White House argued the court is taking steps to unfairly dismantle months of trade negotiations, claiming the court does not and should not enact or engage in foreign economic policy.
According to the case documents, the plaintiffs have until June 5 to respond to the motion for a temporary suspension, and the federal government will have until June 9 for an official response.