Trump’s trade war raises U.S. recession risk, IMF warns

IMF cuts U.S. growth forecast as Trump’s tariffs fuel inflation and global slowdown fears.

Equities in the US and other major markets have declined this month as investors react to steep increases in US trade barriers. (c) Spencer Platt/Getty Images

By Anna Fadiah and Hayu Andini

The International Monetary Fund (IMF) has raised alarm over the growing likelihood of a U.S. recession, attributing the rising risk to the ongoing trade war initiated by former President Donald Trump. In its most recent World Economic Outlook, the IMF significantly downgraded the U.S. growth forecast, warning that the economic damage from the tariff battles is spreading globally, impacting both developed and emerging markets.

According to the IMF, Trump’s trade war recession risk is now a primary concern for global financial stability. The fund reduced its 2025 U.S. growth projection to 1.8 percent — a stark decline from the previous estimate of 2.7 percent. The broader impact of Trump’s tariff escalation, particularly against major trading partners like China, is contributing to what the IMF calls a “significant global slowdown.”

IMF slashes growth forecasts across the board

The IMF’s new forecasts reflect a gloomy global outlook. Every G7 country — including the United States, the United Kingdom, Germany, and Japan — received a downward revision. Major developing economies like China, India, Brazil, and South Africa also saw their growth expectations cut.

The global growth rate is now projected at 2.8 percent in 2025, down from 3.3 percent the previous year. The fund attributes the drop to rising trade barriers and investor uncertainty, primarily linked to the U.S. administration’s tariff policies. Even more troubling, the IMF warns of “intensifying downside risks” that could destabilize financial markets worldwide.

Financial volatility triggered by trade tensions

Alongside the World Economic Outlook, the IMF released its Global Financial Stability Report, highlighting how Trump’s trade war recession risk is already rattling markets. The fund noted that financial conditions have tightened significantly since the White House introduced its latest round of tariffs.

Tobias Adrian, who heads the IMF’s monetary and capital markets department, emphasized that equity markets could face further declines if trade negotiations between the U.S. and its trading partners falter. “The downside risks have been priced in to some degree,” he said, “but share prices could absolutely fall further.”

Investor anxiety was evident earlier this week when the dollar slid amid rumors that Trump might seek to oust U.S. Federal Reserve chair Jay Powell. Such a move, seen as a threat to the Fed’s independence, could provoke more financial instability and undermine confidence in U.S. monetary policy.

Recession risk for the U.S. nearly doubles

Pierre-Olivier Gourinchas, the IMF’s chief economist, told reporters that while the U.S. and global economies might avoid a recession in 2025, the risk has grown considerably. The fund now estimates the chance of a U.S. recession at nearly 40 percent — up from 25 percent in its prior report.

“The major risk in front of us is that there could be further escalation in tariffs and trade tensions,” said Gourinchas. He also pointed to the risk of tighter financial conditions, which could amplify the negative effects of higher prices and lower investment.

The IMF predicts that U.S. consumer inflation will rise to 3 percent in 2025, a full percentage point higher than its earlier forecast. This surge in inflation is largely attributed to the cascading effects of Trump’s tariffs on goods, which have raised costs for American consumers and businesses alike.

Trump pressures the Fed amid rising inflation

Despite growing inflation, the Federal Reserve has opted to keep interest rates unchanged, a move the IMF supports. Gourinchas reiterated the importance of central bank independence, stating that the Fed’s cautious stance is appropriate under current circumstances.

“The Fed is sitting at this point and saying, ‘OK, how is this going to play out?’ And waiting and figuring things out seems very appropriate,” Gourinchas said.

The IMF assumes that the Fed will implement two rate cuts in 2025. However, it warned that any political interference from Trump — particularly if he seeks to remove Powell — could backfire by eroding investor confidence and destabilizing financial markets further.

Global trade war casts shadow over IMF/World Bank meetings

The IMF’s outlook comes ahead of the joint spring meetings with the World Bank in Washington, where global trade disputes are expected to dominate the agenda. The fund urged countries to resolve trade tensions “urgently” to prevent further damage to the world economy.

“Broader financial instability may ensue, including damage to the international monetary system,” the IMF warned, highlighting how the Trump-led trade war recession risk now looms over every major economic decision being made in 2025.

Tariff escalation timeline and geopolitical implications

The IMF’s forecast incorporates tariff changes between February 1 and April 4, a period during which the U.S. imposed steep new tariffs on imports from China, Canada, and the European Union. While Trump later announced a 90-day pause on most reciprocal tariffs, he simultaneously raised levies on a range of Chinese goods.

Only a few G20 countries, such as Turkey, Argentina, and Russia, received slight growth upgrades. The rest saw reduced projections, a reflection of how deeply interconnected and vulnerable the global economy has become.

Global slowdown hits major economies hard

Germany, Europe’s largest economy, is forecast to grow at 0 percent this year, with only a modest 0.9 percent growth expected in 2026. The UK is facing similarly sluggish prospects, with a projected 1.1 percent expansion in 2025 and 1.4 percent the following year.

China’s economy — a primary target of Trump’s tariff hikes — is projected to slow to 4 percent growth for both 2025 and 2026, down from 5 percent in 2024. The IMF says these numbers reflect not only trade tensions but also structural challenges facing the Chinese economy.

What lies ahead?

While the United States remains the fastest-growing G7 economy in 2025, the slowdown compared to 2024’s 2.8 percent growth is a troubling sign. The IMF emphasizes that unless the Trump administration reverses course on tariffs, the risks of a prolonged economic downturn — and potentially a full-blown recession — will continue to rise.

With the global economy at a tipping point, the warning is clear: Trump’s trade war recession risk is no longer just a theoretical threat. It is materializing in real-time, with consequences that could echo for years to come.