Despite President Donald Trump’s abrupt decision to suspend reciprocal tariffs for 90 days, the move has done little to boost the economic outlook. The ongoing trade war with China—America’s largest trading partner—continues to escalate, further weakening business confidence.
ALSO READ: Anti-Trump protests in US today: Where are people holding rallies and what is ‘Day of action’?
With Trump’s tariffs straining global trade and India maintaining strong ties with both the US and China, a potential recession in the US could, at the very least, dampen India’s growth rate. But what do the economists and investors have to say about it. Here are key things you need to know:
Is US recession on cards?
Several economic indicators suggest that the US may be on the brink of a recession, reports TOI. The Conference Board’s Leading Economic Index (LEI) has declined in 15 of the past 18 months, indicating a significant slowdown in growth. A recent Reuters poll of economists puts the likelihood of a US recession within the next year at 45%—the highest since December 2023. Driving this outlook are factors such as new tariffs, which are expected to shave 0.8 percentage points off GDP growth in 2025, along with weakening business sentiment and scaled-back capital investment plans.
Mark Zandi from Moody’s Analytics has also placed the odds of a recession at 40% by the end of 2025, citing tariffs and tight credit standards as key issues. Bloomberg Opinion’s John Authers has warned of the increasing risk of policy mistakes reminiscent of the 2008 financial crisis. Ray Dalio, founder of Bridgewater Associates, has stated that the U.S. is “very close to a recession,” warning that mishandling tariffs could lead to more severe economic consequences.ALSO READ: Trump ousts IRS chief just days after appointing him amid feud between Elon Musk and Scott Bessent
How many recessions US has seen since 2000?
The US has experienced several recessions since 2000. The dot-com recession in 2001 lasted eight months, with a peak unemployment rate of 5.7%. The Great Recession, which began in December 2007 and lasted 18 months, saw a significant contraction in GDP of 4.0% and unemployment peaking at 10%. The COVID-19 recession in early 2020 was notably brief, lasting only two months, but it resulted in a staggering GDP decline of 19.2% in the second quarter and an unemployment rate that soared to 14.7%.
How do you define recession?
According to National Bureau of Economic Research’s (NBER), recession is a significant decline in economic activity spread across the economy, lasting more than a few months; judged on depth, diffusion and duration.
ALSO READ: On new website, White House declares lab leak as ‘true origins’ of Covid amid tariff war with China
If US goes into a recession, what will be its global implications?
A recession in the US can have far-reaching effects on the global economy, particularly when it coincides with other systemic financial shocks or external events such as a pandemic. Otherwise, spill-overs are milder.
Historical data indicates that the 2001 US recession did not lead to a global downturn, as world GDP still managed to grow by 2.5%, despite a slowdown in trade. In contrast, the 2007–2009 financial crisis triggered the first global contraction since World War II, with world GDP shrinking by about 1.3% in 2009. The COVID-19 pandemic caused an even sharper decline, with global GDP falling roughly 3%—the steepest drop since 1945.
The deep interconnection of global markets means that US recessions can reduce demand for imports, impacting countries that depend on American trade. However, the severity of these effects depends on the nature of the recession and the resilience of other economies.
Comparing recessions in US, India and China
Recessions in India and China differ significantly from those in the US. The primary shocks in the US often stem from financial cycles and consumer credit issues, while India faces supply-side shocks and external capital flow challenges. In India, informal employment constitutes a large portion of the workforce, limiting the reach of social security measures during economic downturns.
ALSO READ: “Everyone out, no photos”: White House briefing ends abruptly, Trump’s press conference cut short
The US typically experiences a sharp rise in unemployment during recessions, but benefits help cushion the financial blow for many workers. In contrast, job losses in India often push workers back into agriculture or informal sectors, exacerbating underemployment rather than simply increasing the unemployment rate.
Additionally, while a US recession can tighten global financial conditions, an Indian recession primarily impacts regional trade and commodity demand, with limited financial contagion due to capital controls.
As the US economy navigates these uncertain waters, the implications for both domestic and international markets remain a critical area of focus for economists and policymakers alike.
