Red Flags For US Economy. Tariffs And Mounting US Debt Problem Raises The Probabiltiy Of A US Recession By 35% And ‘Shocking Developments’. Why The World Should Be Worried

The on and off tariffs conundrum, under Donald Trump has the world in a tizzy but it also has some rather great repercussion on the US economy itself.

The chances that the US will experience a recession in 2025 have increased because of the tariffs it has implemented, Alec Kersman, managing director and head of Asia-Pacific at Pimco, said at event in Singapore on Wednesday.

There is a “maybe 35% probability” that the U.S. will enter a recession this year, Kersman stated. That’s up from the approximately 15% chance that Pimco estimated in December 2024 as the repercussions of U.S. President Donald Trump’s tariffs take effect.

Nevertheless, Kersman pointed out that the firm’s base case scenario is that the U.S. economy will grow by 1% to 1.5%, which is still an expansion, despite being “quite a significant decrease” from earlier expectations.

In fact, according to Kamal Bhatia, president and CEO of Principal Asset Management, a boost in domestic consumption because of such trade policies could help the U.S. economy grow more than anticipated.

Risk of insularity

Trade wars could cause countries to “go back to being insular,” Bhatia said, which could cultivate “spurts of patriotism that translate into people spending more locally in their own nation.”

Most people will underestimate such effects because they focus on the “external effects” on gross domestic product, Bhatia added.

Consumer spending on goods and services account for around two-thirds of U.S. gross domestic product. There is therefore is a “high probability” that a tariff-induced increase in domestic expenditure will cause the country’s GDP to “do better than you anticipate,” Bhatia said.

Those potential changes in spending patterns come as geopolitics begin to play a bigger role in economies and markets, Bhatia noted.

“We’ve had very muted geopolitics in investing for a long period of time, and clearly tariffs are changing that,” he said.

Tariffs On Steel And Aluminum, Europe Retaliates 

Meanwhile, U.S. President Donald Trump’s 25% tariffs on steel and aluminum imports came into effect Wednesday, despite concerns that the duties could push the world’s biggest economy toward a recession.

The White House confirmed the duties, which will affect Canada and other nations, late Tuesday state side, but added that Trump no longer planned to raise tariffs on the metals from Canada to 50%.

It marks the latest development in a simmering trade war that has been marked by bold promises of tariffs and subsequent reversals and delays by Trump.

The European Union said on Wednesday it would impose counter-tariffs on 26 billion euros ($28.33 billion) worth of U.S. goods starting in April in response to the duties on steel and aluminum. The counter-measures are designed to “protect European businesses, workers and consumers from the impact of these unjustified trade restrictions,” the European Commission said in a statement.

Australian Prime Minister Anthony Albanese said that Trump’s move to impose the tariffs was “entirely unjustified.”

“It’s against the spirit of our two nations’ enduring friendship and fundamentally at odds with the benefits that our economic partnership has delivered over more than 70 years,” he said at a press conference.

Last month, Trump said he was considering tariff exemptions on Australian steel and aluminum exports to the U.S.

Albanese added that Australia will not impose reciprocal tariffs on U.S. imports as that would only serve to inflate prices for Australian consumers.

Ray Dalio Sounds the Alarm. U.S. Debt Crisis Could Bring “Shocking” Consequences

Adding more to the growing voices of concern, billionaire investor and Bridgewater founder Ray Dalio isn’t holding back, he’s warning that the U.S. debt situation is heading for a major reckoning, and the fallout could shake up the global economy in ways we’re not ready for.

Speaking at an event in Singapore, Dalio pointed out that the U.S. has a serious supply-demand issue with its debt, essentially, the government needs to sell a ton of it, but the world just isn’t that interested in buying. That, he says, is a huge deal.

“The debt issue is of paramount importance,” Dalio emphasized, predicting that we’re about to see some shocking developments in how the U.S. deals with this growing problem.

Right now, the U.S. deficit is projected to hit 7.2% of GDP, but to avoid a full-blown crisis, it needs to be slashed to around 3%. That’s a massive adjustment, and Dalio warns that handling it won’t be pretty.

What Could Happen Next?

When asked if this debt mess could lead to austerity measures, Dalio suggested other possibilities, things like restructuring U.S. debt, pressuring foreign countries to buy more of it, or even selectively defaulting on payments to some nations.

And if that sounds extreme, Dalio reminds us that history is full of similarly “unthinkable” moments that ended up happening anyway.

“Look at history—these things repeat over and over. We’ll see developments that are just as shocking as what we’ve already witnessed,” he said.

Trade War Adding to the Chaos

Dalio’s warning comes at a time when markets are already on edge, thanks to the wild swings in U.S. trade policy. Trump’s tariffs on Canada, Mexico, and China are designed to rebalance the global economic order in America’s favor, but they’ve only added to uncertainty on Wall Street.

When asked about the broader impact of these escalating trade disputes, Dalio pointed to history once again, drawing parallels to 1930s Germany. Back then, nations resorted to debt writedowns, protectionism, and nationalism as they scrambled to stabilize their economies.

“Be nationalistic, protectionist, militaristic—that’s how these things tend to play out,” Dalio observed. And while he’s not necessarily predicting war, he does see more global conflict ahead, economically, politically, and diplomatically.

Dalio made it clear he’s not taking sides, he sees himself more as a mechanic diagnosing a broken engine. “I’m not an ideologue,” he said. “I’m just looking at the situation as it is.”

Why the World Should Be Worried About a U.S. Recession and Trump’s Trade Policies

The global economy has long danced to the tune of the United States. When America sneezes, the world catches a cold. But what happens if the U.S. doesn’t just sneeze but plunges into a full-blown economic crisis?

Ray Dalio’s warning about America’s mounting debt is a potential global economic earthquake. If the U.S. economy slows down or enters a recession, the ripple effects will be felt worldwide, hitting everything from emerging markets to European financial institutions, Asian manufacturing hubs, and commodity-exporting nations.

But there’s an even bigger underlying risk, the way America chooses to steer its economic struggles centered around tariffs and economic nationalism, has already rattled global markets, but the impact could be far more dangerous, threatening global supply chains, escalating resource battles, and even sowing the seeds of geopolitical conflicts.

Why a U.S. Recession Would Be a Global Nightmare

The U.S. remains the world’s largest economy and the beating heart of global trade, finance, and consumption.

If a recession hits, it would mean stock market chaos and capital flight. Which in turn would lead to – a downturn in the U.S. means panic selling in global markets. Emerging markets, heavily reliant on U.S. investment, could see capital outflows, crashing their currencies. The dollar, paradoxically, could strengthen further as investors rush to “safe-haven” assets, making debt servicing even tougher for developing nations.

A Trade Slump That Hits Global Manufacturing

The U.S. is a key consumer market, when Americans cut back on spending, global manufacturers, from China to Germany, feel the squeeze. Countries that rely on U.S. demand, like Mexico, Canada, Japan, and South Korea, will see industrial slowdowns.

Debt Crises in Emerging Markets

Many countries borrowed heavily when interest rates were low. If the U.S. downturn forces the Fed to raise rates again, debt-laden economies like Turkey, Argentina, and parts of Africa could be pushed into a financial crisis.

Donald Trump’s economic nationalism is on steroids, especially at a time when the U.S. is already dealing with economic stress and could amplify global economic instability.

Supply Chain Disruptions Means More Than Just Higher Prices

Trump’s policies could severely disrupt global supply chains, forcing companies to relocate production and cause shortages of essential goods. If he expands tariffs to new sectors, expect higher costs, slower deliveries, and a manufacturing crunch.

China, still the world’s factory, has already retaliated possibly leading to a full-blown economic cold war. This would impact everything from consumer electronics to industrial machinery, creating inflationary pressures worldwide.

Resource Battles Could Escalate Into Conflict

Trade wars don’t just mean higher prices, they mean nations scrambling for essential resources.

Further sanctions on Russia could lead to energy shortages, forcing Asian and European nations to compete more aggressively for oil and gas.

Tariffs could disrupt the supply of key materials like lithium, cobalt, and semiconductors, heightening competition among tech-dependent economies.

Tariffs and geopolitical tensions could disrupt global food trade, especially for nations dependent on grain imports from other countries.

Could This Be the Beginning of a Bigger Global Conflict?

What is worrying is this – economic downturns historically fuel nationalism, trade wars, and sometimes even military confrontations. If the U.S. recession deepens and tariffs worsen economic inequality worldwide, countries including America could resort to economic aggression, resource hoarding, and military posturing.

Just consider this historical pattern – 

The Great Depression (1930s) – Led to protectionism, trade breakdowns, and geopolitical instability, culminating in WWII.

2008 Financial Crisis  – While not leading to war, it fueled global political instability and a rise in authoritarian nationalism.

Now, imagine a U.S. recession combined with aggressive economic nationalism. It could trigger – 

• More trade wars and economic blockades (U.S. vs. China, EU vs. Russia).

• Increased territorial disputes over resources (South China Sea, Arctic energy reserves).

• Stronger political divides (East vs. West economic blocs forming).

The Last Bit 

Ray Dalio’s warning about U.S. debt is about a potential global realignment of economic and political power.

If the US economy goes into crisis mode and tariffs become a tool of economic warfare, the world could be heading toward an era of heightened instability. It may not be an outright war, but expect economic battles, resource struggles, and geopolitical confrontations that reshape the global order.

The world should brace itself, because what happens in America won’t stay in America.