U.S. Economy at Risk of Recession Amid Global Trade War

(Reuters) – The United States could dip into recession as fallout from a global trade war affects economies worldwide. French central bank chief, Francois Villeroy de Galhau, stated that even the euro zone would suffer, albeit to a lesser extent.

The U.S. has implemented numerous tariffs on most nations globally, suspending some while many remain in place. This uncertainty negatively impacts confidence, investment, and economic output.

“The new measures announced as well as the increasing unpredictability, constitute a major negative shock to the global economy, but first and foremost to the U.S. economy,” Villeroy stated while addressing the Atlantic Council in Washington. “There could even be a U.S. recession, which was unthinkable three months ago.”

While the impact on the euro zone might be smaller, Villeroy predicted it could still reduce the 2025 GDP by at least a quarter percentage point. Some economists believe a trade war may increase inflation; however, Villeroy dismissed such concerns, indicating that the overall effect might lower prices instead.

“There is currently no inflationary risk in Europe,” he noted, adding that the impact of a trade war on inflation remains uncertain but could be on the downside.

Additionally, Villeroy expressed concerns that further attacks on central bank independence and credibility could further disrupt financial markets, which have recently experienced volatility. U.S. President Donald Trump, who has criticized Federal Reserve Chair Jerome Powell, has eased his threats to fire Powell, leading to a rally in financial markets that were apprehensive about a potential loss of the Fed’s independence.

“Let me … express again my gratitude to Fed’s Chair Powell, who admirably shows how a central banker must behave,” Villeroy concluded.