Trade War or A Period of Transition?

The Next U.S. Recession and What It Means for US-China Competition

Credit: Shutterstock.com/Zamrznuti tonovi

It is frequently held that two consecutive quarters of negative gross domestic product (GDP) growth indicate a recession.

The United States’ last major recession was during the 2008 financial crisis. During the COVID-19 pandemic, the U.S. entered a brief recession but managed to escape it in merely two months, making it the shortest recession on record due to substantial amounts of government stimulus. Since then, the U.S. economy has recovered much quicker than other developed economies. However, things have changed since President Trump's inauguration on January 20, 2025.

President Trump’s agenda for his second term in office includes the use of trade restrictions such as tariffs on trade partners of the United States, targeting Canada, Mexico, and China, among other countries. These tariffs have triggered fears of a recession in the U.S, since tariffs reduce employment, reduce labor efficiency, and make goods more expensive. Although public opinion over recession and tariff fears is split across party lines, more than 50% of all Americans are concerned about both issues. A Guardian poll conducted in early March found that 90% of Democrats, 69% of independents, and 57% of Republicans are worried about tariffs. The same poll also concluded that 89% of Democrats, 75% of independents, and 65% of Republicans are worried about a recession.

Various economic statistics related to consumer confidence and business environment are also rapidly deteriorating in the United States. According to Apollo Academy, consumer sentiment is at its lowest point since mid-2022, when COVID-19 was at its peak. Unemployment expectations have also been at their highest since the 2008 financial crisis. A record number of consumers believe that business conditions are worsening.

Some experts and banks concur that the chances of a U.S. recession in 2025 are high. J.P. Morgan’s Chief Economist said on March 9, 2025, that the chances of a recession were at 40%. Former Treasury Secretary Larry Summers warned that the chances of a recession are about 50%. Moody Analytics’ Chief Economist placed recession chances at 35%, citing Trump’s newly imposed tariffs.

President Trump’s response to these concerns has been continued support for tariffs. He states that the economy is in a “period of transition” and that he “hates to predict things like that,” referring to a recession. President Trump claimed that he is focused on building a strong country and cannot be looking at the stock market.

President Trump’s agenda is aimed at bringing manufacturing back to the United States and reducing foreign trade deficits. . Since the U.S. is the largest consumer of goods and services worldwide, the President believes he can use the leverage of the American market to encourage countries to invest and build in the U.S. However, there are also counterarguments of reduced competitiveness, reduced choice of goods and services, and the creation of a captive market. Since tariffs disincentivize the purchase and use of foreign goods, domestic producers can lessen product quality to cut costs. Since consumers have no other choice but to buy these goods, the variety of goods available to them decreases, and their quality of life is reduced.

President Trump’s tariffs also have implications for geopolitics. The Trump administration has made it clear that it sees China as a threat. Secretary of State Marco Rubio has described China as a “totalitarian threat to America’s influence on the world stage.” Trump’s tariffs on China are shaping up to be an attempt to stop Beijing’s rise on the world stage, to increase U.S. economic independence from China, and to enter the manufacturing space as a competitor to China.

Unsurprisingly, Beijing is not backing down from a challenge to its manufacturing dominance China has hit the U.S. back with tariffs, primarily on food imports from the United States. It also added 15 American companies to its export control list, hindering their use of Chinese equipment.

Beijing has signaled that it is ready to confront the United States. The Chinese Embassy in the United States’ account on X made a post saying, “If war is what the U.S. wants, be it a tariff war, a trade war or any other type of war, we’re ready to fight till the end.” Additionally, Reuters reported that Chinese Communist Party Officials met on February 28, 2025 and promised to take steps to prevent and resolve any external shocks to the Chinese economy.

We reached out to Adithya Kashyap (CAS ‘28), a member of The Strategem Initiative, a policy and international affairs club at Georgetown, and he gave the following statement:

“While Trump's tariffs are not unprecedented, given they were initiated by him during his first term and continued by Biden, the aggressiveness with which they have been levied is certainly surprising and perhaps rash. Economists estimate that US growth is likely to be slashed from the optimistic targets once projected. The tariffs on China are furthermore likely to be passed onto consumers, leading to increased prices of essential goods that have the potential to affect us Georgetown students.”

With China closing in on the United States in critical fields like artificial intelligence (AI) and electric vehicles (EVs), this escalation is a sign of increased competitiveness.

A related concern is the status of Taiwan under the new U.S. administration, which has pursued a more isolationist foreign policy than its predecessor. Within two months of President Trump’s inauguration, there have been significant developments. First, the new administration has been adamant (through tariff threats) that Taiwan Semiconductor Manufacturing Company (TSMC), seen by some as the biggest motivator for the U.S. to defend Taiwan, move its production to the U.S. If production is domestic, the U.S. has less incentive to defend Taiwan in the event of a Chinese attack. TSMC has agreed to invest in the U.S., although they officially deny that this is due to U.S. political pressure. The U.S. has also reaffirmed that it seeks to maintain Taiwan’s status quo and opposes unilateral changes.

In total, the potential 2025 United States recession brought about by President Trump's assertive tariff policies has considerable ramifications on both domestic United States economic stability and international geopolitics. The expected economic slump concerns United States consumers and businesses while fueling the United States-China rivalry at the same time, since countries disillusioned by the U.S. may look to Beijing as an alternative. With these two countries engaging in reciprocal actions, the world economy experiences higher uncertainty levels. This geopolitical and economic rivalry defines US-China ties and the world order now and for the foreseeable future. The scale goes all the way down to individuals because of price and job market fluctuations that result out of national policy changes.