By Dr. George Calhoun
Executive Director of the Hanlon Financial Systems Research Center at Stevens Institute of Technology
“U.S. Economic Growth Expected to Flatline in 2025. Tariffs Are the Main Reason.” – Barron’s (April 15, 2025)
“If they don’t change the tariffs, it’s going to be an extinction-level, asteroid-wiping-out-the-dinosaurs kind of event… a $2T hit to economic activity in our country, the failure of tens of thousands of American businesses, and the laying off of millions of employees…” – Ryan Petersen, CEO of Flexport, a leading logistics company – from The Wall Street Journal (May 2, 2025)
The Trade War is on. Will there be a Recession?
Yes. Without a doubt. At some point, the business cycle will turn down. As night follows day.
But – I don’t think that tariff policies will be the cause of it.
Executive Summary
The causal pathways that could lead from potential tariff hikes to negative growth are not (yet) showing signs of activation.
There are four “channels” that could transmit the tariff shock to the larger economy:
- Reduced demand due to higher prices (similar to any tax)
- Supply-chain disruptions and lost output
- A crisis of business confidence, leading to lower investment and hiring
- Increased negative sentiment among consumers, leading to lower spending
The case for alternative 1 seems insufficient. The direct monetary impact of a tariff tax appears to be simply too small to derail a $30+ trillion dollar economy with four years of strong upward momentum. As for alternative 2, recent history shows that supply chain stress does not necessarily cause a slowdown. The U.S. economic surge in growth that began in Q4 2020 happened despite high levels of supply chain pressure throughout 2021 and 2022.