The likelihood is growing that the economy will be in recession when voters cast their ballots in the midterm elections. Goldman Sachs on Thursday raised its 12-month estimation of a recession’s probability from 20 percent to 25 percent, and on Friday morning Polymarket, the crypto-based prediction market, put the likelihood at 34 percent within the next nine and a half months. Even if we don’t see an outright recession, Trump’s economic policies are plainly failing.
The most immediate economic problem is the Iran war, which on Friday morning had oil trading at about $100 per barrel, even after the Treasury Department rather pathetically lifted sanctions on Russian oil for tankers already at sea. In effect, war with Iran is compelling Trump to partially surrender to Russia in the Ukraine war—even as Russia helps Iran target U.S. forces in the Middle East—and it isn’t even working. Oil prices are still going through the roof. The Democrats’ attack ad writes itself.
Economic indicators were starting to go south even before the war started on February 28. According to a revised Commerce Department estimate released Friday morning, gross domestic product growth slowed to 0.7 percent from October through December 2025, down from 4.4 percent from July through September. Previously the Commerce Department knew GDP growth had dropped (the first estimate was 1.4 percent), but the growth figure turned out to be half what Commerce initially thought. A big part of the problem was reduced government spending at the state and local level. Yes, Virginia, government spending increases GDP, and one out of every three dollars in state spending lately has originated from the feds, who cut Medicaid and food stamps in Trump’s One Big, Beautiful Bill and impounded or otherwise clawed back assorted state grants. The government shutdown last fall further reduced federal aid to states during the fourth quarter.
Another major reason for weak economic growth was that imports grew from October through December, reaching a record high even as Trump slapped tariffs hither and yon. Judged as a revenue-raiser, Trump’s “Liberation Day” tariffs were a great success, raising an estimated $160 billion. But judged as trade policy, the tariffs were a dismal failure, because tariffs are supposed to make people Buy American, not pay more to keep buying foreign products. That just fuels inflation, and according to the Federal Reserve’s favorite inflation measure, the personal consumption expenditures, or PCE, price index, core inflation (i.e., minus volatile food and energy prices) was 3 percent in January. That’s significantly higher than when Trump took office one year before, after getting elected promising to reduce inflation. Rising oil prices will now send non-core inflation higher.
The Supreme Court ruled last month that the Liberation Day tariffs were illegal, so Trump will have to give that $160 billion back. Trump immediately substituted tariffs that are both temporary and of dubious legality. The various investigations announced this week to justify different tariffs after these temporary ones expire will have to be conducted so hastily (the temporary tariffs expire in 129 days) that they’ll likely be vulnerable to court challenge.
The trade deficit, we learned this week, narrowed in January, from $73 billion to $55 billion. (This was before the Supreme Court killed the Liberation Day tariffs.) Good news, right? Not really. The main reason was a stampede by overseas buyers to purchase American gold. That was a vote of no confidence in American dollars and American Treasury bills. Out of a $15 billion increase in exports, $4.7 billion was gold, and when you add in other precious metals, such foreign stockpiling accounts for more than half the increase. The dollar’s value fell more than 9 percent in 2025, its biggest annual drop since 2017. The Iran war sent the dollar rising as global investors seek a safe haven, while gold has held steady. Treasury yields, which have been elevated since before Trump took office (that’s bad), have risen further as a result of the war, though mostly they’ve been crazy volatile.
So maybe this war is more about rescuing American currency than about, say, distracting the public from a 2019 allegation in the Epstein files—previously suppressed by the Justice Department for the not remotely believable reason that the document was thought a duplicate—that Trump sexually assaulted an underage girl in the mid-1980s. But if the war is about shoring up the dollar’s global primacy, then it’s working for the dollar itself but not for Treasury bonds. At the moment, foreigners like our greenbacks better than they like our government debt.
Did I mention that job creation was also down before the war started? That’s according to a March 6 report by the Bureau of Labor Statistics, which is headed by an acting commissioner because the previous commissioner displeased Trump in August with unfavorable jobs numbers and the man Trump nominated to replace her later withdrew because he was too much of a hack to win confirmation even from a compliant Republican Senate. At the end of January, Trump nominated a more acceptable candidate, who has not yet been confirmed. Anyway, the latest jobs report showed that 92,000 jobs were lost in February, which is not good, though we’ll need one or two more monthly reports to identify this as a trend.
Uncertainty about whether Trump seeks a regime change in Iran makes all of this worse. On some days he wants one, and on other days he doesn’t. But even (especially?) if the war ends next week, the instability it created will continue to disrupt an economy that was already headed for trouble before it began. If I didn’t know any better, I’d guess Trump was deliberately trying to throw the midterm elections to the Democrats. That’s not his intention, of course. He’s just really bad at this.
