I’m an Economist: Why There Won’t Be a Recession in 2025, Despite Trump’s Tariffs
Written by
Gabrielle Olya
Edited by
Molly Sullivan
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Although many people have speculated on the possible effects of President Donald Trump’s tariff proposals, it’s too soon to tell how everything will eventually shake out, according to Connor Lokar, senior forecaster at ITR Economics.
“Tariffs are by now a well-known form of taxation. There has been much written and even more said,” he said. “We will know more after the timing, magnitude and agreements are all worked out. It is too soon to claim to have all the answers. However, there are some broad strokes to share.”
One of Lokar’s “broad strokes” is his belief that the tariffs will not cause a recession in the U.S. economy in 2025. Here’s why he’s confident this will be the case.
Historically, Tariffs Have Not Led To a Recession
The U.S. economy is currently on an upward trajectory, and Lokar expects this trajectory to continue this year.
“Our current forecast is that the U.S. economy, as measured by U.S. industrial production, should experience upward cyclical momentum in 2025 characterized by rising manufacturing and industrial activity,” he said. “This, combined with an ongoing rise in retail consumption and rising inflation-adjusted income levels, should yield an economy that expands this year and avoids recession.”
However, Lokar does expect inflation to remain high.
“We do anticipate inflation staying elevated in 2025 in concert with this growth,” he said.
While Lokar does not expect Trump’s tariffs to cause a recession, he does believe they could increase inflation.
“Current tariffs applied to China and the … 25% tariffs on all steel and aluminum imports, as well as possible Canada and Mexico tariff implementation next month, could offer additional marginal upside inflation pressure that we feel is consistent with our outlook of higher inflation and interest rates in 2025 and 2026,” Lokar said.
Even with rising inflation, he does not believe a recession is imminent — though he does warn that tariffs could lead to a recession if they drastically alter consumer behavior.
“Looking at history, implementing tariffs is not an immediate causal driver of recession,” Lokar said. “A trend we will be watching closely, particularly if we see significant escalation of tariffs beyond what we have seen so far, is if those tariffs yield enough additional inflation pressure to subvert the current rising trend in inflation-adjusted disposable income levels, and then eventually lead to contracting real consumer spending and likely domestic industrial activity.”
Will There Be a Recession in the Near Future?
Lokar does not believe the U.S. will enter a recession anytime soon — he actually believes we are on our way out of one.
“We do not currently have a recession in our forecast for the next two years,” he said. “Our view is that many portions of the U.S. economy actually sustained a recession in 2024 and are exiting it as we head into 2025.
“This is counter to the broader headline environment that focused on the rising U.S. gross domestic product trend over the last two years, while ignoring recessions in U.S. industrial activity, U.S. manufacturing outcomes, the U.S. housing market contracting in 2022 and 2023, as well as recessions in freight and inflation-adjusted retail spending throughout much of 2023 and 2024 — and too many other sectors to mention individually.”
Lokar believes that we are headed for a strong economy in the year to come.
“Inflation-adjusted GDP continued to rise in 2023 and 2024, despite all the aforementioned pain in other areas of the economy, owing to support from resilient service sector activity and significant public sector spending,” he said. “As things currently stand, we expect those industries that struggled to various degrees in 2023 and 2024 to strengthen in 2025, which should support ongoing macroeconomic rise.”
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