Will Trump send us into a global recession? Potentially, say experts – but austerity not the answer

Are we heading for a global recession? Potentially, say experts – but the government can cushion the blow by investing in green industry.

President Donald Trump’s ‘liberation day’ tariffs – import charges on foreign goods entering the US – continue to wreak havoc on the world economy.

Global stock markets endured a third consecutive day of declines on Monday (7 April), with commodity prices and bank shares plummeting. Investment firm Goldman Sachs has put the chance of a US recession at 45%, an economic calamity that could well trigger a global downturn. The consequences “may be hard to reverse,” JP Morgan chief executive Jamie Dimon warned.

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The UK will not be exempt from this impact, Keir Starmer acknowledged on Monday afternoon.

“Nobody is pretending that tariffs are good news,” he told reporters. “25% tariffs on automotive exports and 10% on other goods, that is a huge challenge for our future, and the global economic consequences could be profound.”

Experts have dug into what those ‘profound’ consequences could be.

“It’s likely that there will be major impacts on the economy. I think it’s probably still too early to say whether this could be a global recession, but it definitely means less growth,” says Pranesh Narayanan, research fellow at IPPR.

“Is this a long term change? Is this the new normal? There are mixed messages coming out of different parts of the US administration. Either way, it’s causing an overwhelming amount of uncertainty, and that will have knock-on effects.”

High import taxes mean higher prices for consumers, as businesses look to offset their losses. Uncertainty erodes investment confidence, driving down economic activity and leading to job losses.

But a lot is still up in the air, said Dr Linda Yueh, fellow in economics at the University of Oxford.

“The economic impact of these tariffs is highly uncertain and unpredictable,” she said. “The effects will vary from country to country, and a lot will depends upon how long the tariffs are levied for, how other countries respond and how companies manage the tariffs and the uncertainty of trade policy.”

The International Monetary Fund (IMF) estimates that Trump’s tariffs could reduce global economic growth by 0.5% through next year.

So what will it mean for UK growth and jobs?

What is a global recession?

A recession is a sustained period of economic decline. An economy is technically defined as being in recession when the total of everything the government, businesses and consumers spends and exports shrinks for two successive three-month periods.

Global recessions are rare but cause immense harm.The 2008 recession, for example, led to massive job losses and home foreclosures. Financial institutions collapsed, triggering a deep trust crisis in the banking system. Economic inequality worsened and recovery was slow.

The 2008 crisis is a case study in how not to respond to a recession, said Melanie Brusseler, US-based programme director at Common Wealth.

“If the US went into a recession, that would certainly kind of affect global macroeconomic health, because the US is a pretty large consumption market,” she said. “But let’s be clear, the UK has the capacity to invest in infrastructure and public services and failure to do so will be because the UK has given into pro-austerity coalitions not because of US tariffs.”

After the 2008 crisis, David Cameron promised a “bold and reforming” government would tackle the budget deficit and national debt. Then-chancellor George Osborne implemented a string of cost-cutting measures: Housing benefit was reduced, councils lost a third of their spending power, child benefit was frozen and family tax credits were amended to save the treasury coffers.

The impact was terrible. In its ‘The true cost of austerity and inequality: UK case study’, Oxfam notes how austerity created a “deeply damaging situation in which millions are struggling to make ends meet”.

It’s a cautionary tale. If we were to go into recession again, the government should build, not cut, said Brusseler.

“There will be a hit to global economic growth [because of these tariffs]. There will likely be price increases. There are worse scenarios, like a global recession. But let’s be clear, the way to respond is not by cutting public services,” she said. “Tariffs will hurt the UK, but it’s important to not let the government use them to get away with implementing their own bad policies [AKA more cuts to benefits].

“The green transition, for example, is basically just a huge building project. There’s a positive feedback loop when it comes to investing in this way.”

The IPPR have previously predicted that a well-thought through “just transition plan” could create a staggering 1.6 million jobs.

Stimulating the domestic market is another way to drive green growth, said Narayanan.

“In the short term, the government should identify the industries that are impacted, and try and join them up with the domestic market, to provide UK businesses with an opportunity to sell to UK customers.

“That isn’t always going to be possible, or sort of, For example, you know, for the auto industry, you’re not going to suddenly find a ton of buyers in the UK for Jags or Land Rovers. Those are expensive goods. But with things like cheaper electric or hybrid vehicles produced in the UK – you could try and create a market for those within the UK from sort of mid to low income consumers by offering a new plug-in grant.”

Car manufacturing in the UK is now 2.5 times lower than car registration – meaning there is currently a significant reliance on importing cars from abroad. That’s an opportunity for the government, said Narayanan.

“There are ways to stimulate the internal market and also tick those climate boxes,” he added.

The prime minister has said the government “will do everything necessary to protect Britain’s national interest” and is “ready to use industrial policy” to help shelter businesses, because “the world as we know it has gone” and the era of ‘globalisation’ is over.

However, “trade isn’t going to stop,” said Narayanan. “The US isn’t the only trading economy in the world. We need to shore up trading relationships with other countries and the EU, our major trading partner. There’s a tightrope to walk there.”

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