Could Donald Trump’s Trade War Cause A Recession?

Despite the current strong economy, President Donald Trump’s trade battles with Mexico, Canada, Europe and China have economists fearing a destabilized market.

The Dow has been down in the wake of trade confrontations between the United States and China, and Harley-Davidson has decided to move some of its motorcycle production overseas as the result of European tariffs. The company plans to produce motorcycles meant for European customers outside of the United States in hopes of avoiding E.U. retaliatory tariffs applied last week in response to Trump’s aluminum and steel tariffs.

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The European Union raised its six percent motorcycle tariff to 31 percent, which Harley-Davidson said would make each bike about $2,200 more expensive to export.  

Trump criticized the motorcycle company on Twitter for moving production overseas. On Monday he accused the company of “waving the white flag” in his trade war, and on Tuesday he decried the idea of Harley-Davidsons being produced outside of America.

Wall Street analysts are warning of a potential recession due to Trump’s trade decisions, and the impacts of these aggressive moves are starting to show up in economist data.

“Our calculations suggest that a major trade war would lead to a significant reduction in growth,” Bank of America Merrill Lynch economist Ethan Harris said in a research note. “A decline and confidence and supply chain disruptions could amplify the trade shock, leading to an outright recession.”

Many forecasts call for close to four percent economic growth in the second quarter and potentially three percent for the full year – a level that hasn’t been hit since 2005. Analysts believe that the biggest risk to this success is Trump himself.

“We are in a very good place in that we are generating very strong growth and households have more money from the tax stimulus and are enjoying income gains. It’s about as good as we can hope for,” Ellen Zentner, a chief economist at Morgan Stanley, said in an interview with Politico.

The U.S. is currently at a 3.8 percent unemployment rate, and government data has recently shown more job openings than prospective employees.