Trump Vs. World: A Test Run For Another Global Recession?

U.S. President Donald Trump has pledged to bring world peace through power talks with global leaders, but his tariff wars may sabotage the very dream he's chasing, and the economy, along with its people, could face an adverse impact from all this.

In the latest development, Trump is pushing for a summit between Russian President Putin and Ukrainian President Zelenskyy to end the Ukraine war, with the U.S. and Europe possibly giving security guarantees to Ukraine. He wants an immediate ceasefire and is actively involved in discussions, though details are still being negotiated. Trump's diplomacy is drawing global attention as leaders debate the terms for peace, especially around Ukraine's territorial integrity.

That is one side of the coin. The other side is finally drowning - the labour market is slowing, consumer prices in the U.S. are showing signs of a spike already and tariffs, once in effect, would clamp down on economic growth too.

Also, the U.S. Federal Reserve, chaired by Jerome Powell, is pressured to cut rates when the central bank is well behind the curve. Pressure on the Fed unsettles markets, but caving would be worse. Reports say markets dismiss firing threats as a bluff.

"The Powell Fed tends to lean dovish, focusing a bit more on the job market than inflation. Perhaps the best evidence of this is that after an extended period of significantly above-target inflation,, the Fed is now trying to return to target, rather than undershoot the target," said Ethan Harris, Economist and Fed-watcher.

"The later would be more consistent with a symmetric average inflation target. Hence, I expect the Fed to cut rates, focusing more on weak jobs than sticky high inflation."

How Is The U.S. Economy Really Doing Amid Trump's Tariff Bombs?

The world's largest economy grew 3 percent in Q2 of 2025, a contraction of 0.5% pace in the January-March quarter, which was the first GDP decline in three years.

Meanwhile, US inflation is at 2.7% in July 2025. The Fed continues to believe inflation remains somewhat elevated.

"The effects of higher tariffs are becoming more apparent in US goods inflation. Although firms initially mitigated tariff-related cost pressures by depleting their pre-tariff inventories and reducing margins, consumer price inflation data for June and July showed signs of an increased pass-through to some prices," said Ken Wattret, Global Economist at S&P Global Market Intelligence.

Core Personal Consumption Expenditures (PCE) index excluding food and energy, increased to 2.8% in June 2025, hotter than expected.

The unemployment rate surged to 4.1% in June. The US labor force participation rate currently stands at 62.2%, the lowest since November 2022. The employment-population ratio plunged to 59.6%, which is the weakest since December 2021.

S&P's Ken added, "We continue to forecast weaker quarter-over-quarter real GDP growth rates across most regions during the second half of 2025. This scenario reflects various headwinds, including a jump in the effective US tariff rate, the unwinding of the boost from tariff frontrunning, persistently high uncertainty and still restrictive monetary conditions in many economies."

Is US Economy Heading For Recession?

Trump has announced new tariffs for several countries effective August 2025. These include extra 50% tariffs on India, 35% on Canada, 30% on South Africa and 20% on Vietnamese goods. He has also warned about increasing tariffs to 200% on pharmaceuticals if needed ahead.

"Our updated estimate of the average effective U.S. tariff rate stands at 15.8% - a significant increase from the 2.3% rate at the end of 2024, but roughly six percentage points lower than the 22% recorded on Liberation Day," said Nora Szentivanyi, senior global economist at J.P. Morgan. "Based on our expectation that sectoral tariffs will be imposed later this year, we still anticipate that the U.S. effective tariff rate will approach 18-20%, while the observed tariff rate (based on actual customs duties) is likely to level off slightly higher than 15%."

In an interview with Geoff Bennett of PBS, KPMG's chief economist Diane Swonk said, "Well, we still have a 40 percent chance of recession. And we aren't forecasting a full recession yet."

Moody Analytics chief economist Mark Zandi has said, "1/3 of the economy's industries are in recession, 1/3 are treading water, and 1/3 are expanding. This underscores why recession is such a threat. The breakdown is in the table. I do take some license in defining industries (primarily in defining the tech industry), and this is my subjective view based on looking at lots of data, including output and jobs. But the message is clear. No surprise, those industries struggling the most are most impacted by the higher tariffs, highly restrictive immigration policy, and the DOGE cuts."