Is Trump Intentionally Trying to Bring on a US Recession?

We generally don’t engage in unprovable/unfalsifiable conspiracy-linked speculation to explain market performance or government policy, but today we are making an exception because we are struggling to come up with a more straightforward explanation for Trump’s recent actions.

Tariffs would be negative for the US economy even if they were not large in percentage terms and were introduced in a measured way, but the haphazard way in which large tariffs have been imposed and changed over the past two months greatly magnifies the economic damage that will be done. Furthermore, another intervention under consideration could be even more damaging than the tariffs that have been threatened/implemented to date. We are referring to the port fee plan discussed in an article posted at lloydslist.com on 11th March. Here is an excerpt:

“The US Trade Representative announced on February 21 that it plans to levy exorbitant port fees — in some cases over a million dollars — for every US port call by Chinese transport operators, Chinese-built ships, all operators that have any ships on order at Chinese yards, and according to one interpretation of the proposal (based on a presidential draft order obtained by Lloyd’s List), all operators with any Chinese-built ships in their fleets.

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The USTR plan would also mandate that a portion of US exports be carried on US-flagged and, eventually, US-built vessels.

Respondents had until Monday to submit comments to the USTR if they wanted to testify at the hearing on the proposal on March 24. They responded in droves, overwhelmingly negatively, with several predicting a disaster for importers, exporters and the US economy in general if the USTR did not kill the port fee plan.

Some executives also bluntly asserted that if the plan was approved as written, their companies would go out of business or leave the US.”

If the port fee plan is implemented it will inflict a devastating blow on the US economy, with no potential upside in either the short-term or the long-term. Why, then, is it even being considered?

The port fee plan and the reckless way in which tariffs are being imposed/threatened only make sense if the Trump Administration is trying to ensure that the US economy goes into recession soon. If this is the plan then there is already evidence of success, in that the High Yield Index Option Adjusted Spread (HYIOAS), an indicator of US credit spreads, generated a recession warning signal last week. The signal is the weekly close above the 65-week MA (the blue line on the following chart).

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Why on earth would the Trump team want a recession to happen ASAP?

One reason is that a recession this year could be blamed on Biden. In a way this would be appropriate, because the US economy probably would have gone into recession 12-18 months ago if not for the Biden Administration’s use of aggressive deficit-spending and other tools (mainly, issuing a higher percentage of short-term debt as mentioned below) to delay the inevitable until after the November-2024 elections.

Another reason is that a recession would create a financial/economic backdrop in which there was much greater demand for Treasury securities, enabling the US Treasury to ‘term out’ the government’s debt at lower interest rates. By way of further explanation, during 2023-2024 the U.S. Treasury (NYSE:GOVT) under Janet Yellen substantially increased the use of short-term debt to finance the government’s deficit and in doing so reduced the average term of the total debt. The new Treasury Secretary (Scott Bessent) must now return the average term of the debt to where it should be, which only could be done by increasing the issuance of long-term debt relative to the issuance of short-term debt. This would put upward pressure on long-term interest rates, but if there were a recession then this pressure probably would be more than offset by an increase in the demand for the relative safety provided by long-dated Treasury securities.

A third reason is that if a recession occurs this year, then the economy probably will look fine by the time the mid-term elections roll around in late-2026.

There’s now a high probability that if a US recession is not already underway then it will begin within the next three months. Therefore, if this is happening according to a plan to get the inevitable recession out of the way in 2025, then the first part of the plan is coming together.

Written By: Steve Saville