U.S. Economy 2025: Rising Recession Risks Amid Tariffs & Trade Tensions

"U.S. Economy 2025: Growing Risks of Recession Amid Tariffs and Trade Tensions"

As 2025 unfolds, warning signs for the U.S. economy are growing louder. Top economists and institutions—from the OECD to Moody’s Analytics—are increasingly concerned about slowing growth, rising recession risks, and the destabilizing effects of ongoing trade tensions.

Slower Growth & Recession Warnings

Recent forecasts reveal a stark slowdown. The OECD expects U.S. GDP growth to fall to just 1.6% in 2025 and 1.5% in 2026, down significantly from earlier projections of 2.2% and 1.6%, respectively . Other estimates, such as those from Investopedia, echo these concerns and warn that tight monetary policy may only cushion the fall .

Mark Zandi, chief economist at Moody’s Analytics, goes further—warning that while a recession hasn’t hit yet, certain sectors like construction and manufacturing are already showing weakness, and businesses are pulling back on hiring and investment .

Tariffs, Trade Tensions & Consumer Impact

A key driver behind these gloomy projections is escalating trade friction. Recent research by Goldman Sachs highlights that tariff implementations are shifting cost burdens onto consumers—with the majority of the costs now set to fall on them, fueling inflation .

Simultaneously, economists from Business Insider warn of a looming deflationary shock, as high tariffs deter consumer spending, while restrictive immigration policies suppress demand—a dangerous double hit to economic resilience .

Moreover, inflation isn't the only concern—stagflation may already be creeping back. The Financial Times reports that stagnant growth and sustained inflation are combining to make stagflation a real threat in the U.S. .

AI Boom: Short-Term Boost or Long-Term Mask?

On the brighter side, a surge in AI-related investments is currently propping up U.S. GDP. Pantheon Macroeconomics estimates that AI spending added 0.5 percentage points to GDP growth in early 2025 . Yet, analysts caution that this temporary boost may overshadow deeper structural weaknesses, particularly in non-tech industries still grappling with tariffs and weak demand .

What This Means for the Average American

Consumers are feeling the squeeze. MarketWatch reports that U.S. consumer sentiment has dropped to a three-month low, with inflation and unemployment fears on the rise—even though inflation remains in the mid-2% range .

Moody’s Zandi warns that without meaningful policy corrections—that reduce uncertainty and ease trade tensions—households and investors will increasingly feel the downturn.

Key Challenges & Policy Outlook

1. Trade Policy Risks: Continued tariff escalation risks deeper inflation, weakened exports, and sustained uncertainty.

2. Limited Monetary Tools: With inflation still above target, the Fed’s ability to stimulate growth through rate cuts is limited.

3. Sectoral Weakness: Manufacturing and construction are lagging, and if consumption falters further, broader slowdown looms.

4. AI Disparity: Tech gains are real—but may not translate into broad-based economic recovery.

Conclusion

In 2025, the U.S. economy stands at a crossroads. Forecasts of shrinking GDP, inflation pressures, and evolving trade dynamics point to rising recession risks—not inevitable yet, but increasingly plausible. While AI investment offers hope, without strategic policy realignment—including tariff relief and supportive monetary measures—the road ahead may remain bumpy.