A recession could leave Americans humming 'Oh, Canada'

President Trump’s convincing victory and mandate ignited optimism for more stock market gains, continued economic growth, and higher inflation.

A leaner government, less regulation and lower taxes, combined with U.S. leadership in semiconductors and software for Artificial Intelligence, were expected to spark more innovation and investment.

From Nov. 5 to Feb. 18, the S&P 500 jumped 6% in a market coming off two years of stellar advances and with already frothy valuations.

In 2016, Mr. Trump inherited an economy that had grown only an average of 1.9% annually during the Bush and Obama presidencies and unemployment at 4.7%.

Mr. Trump’s tax cuts and lighter regulatory hand lowered unemployment to 4.1% just before the COVID-19 shutdowns.

President Joe Biden’s lenient border and asylum policies boosted the civilian labor force. His Infrastructure Program, Chips and Science Act and Inflation Reduction Act added more stimulus.

The federal deficit jumped from 2.9% of GDP in 2016 to 6.6% last year, and even with COVID-19, the Trump–Biden economy scored 2.5% average annual GDP growth.

With the fiscal impulse having run its course and Mr. Trump promising stricter immigration policies, the pace of growth was bound to slow somewhat. However, a recession appeared to be a distant possibility as of January.

Even with the prospects of aggressive tariffs on China and milder taxes on other imports, as promised during the presidential campaign, economic forecasters were pegging growth for 2025 and 2026 at 2%, according to the Wall Street Journal's January survey.

In March, Wells Fargo’s economists estimated a moderate tariff scenario with proportionate retaliation from targeted nations would subtract about half a percentage point from growth over the next two years—about the difference between the Trump-Biden 2016-2024 pace and the WSJ panels’ forecast for the next two years.

Mr. Trump’s aggressive postures toward Mexico and Canada and recently proposed reciprocal tariffs were unexpected but if implemented, such policies should only subtract another 0.8%—leaving growth within range of 1% and outside of recession territory.

This makes sense in an economy where good imports are only 11% of GDP.

So, why all the recession fears?

A president and his principal aids must appear steady, confident and in control.

Mr. Trump’s on-again and off-again tariff threats, prospective abandonment of the WTO system altogether with reciprocal tariffs, provocative statements about retaking the Panama Canal, Canada becoming a state and military action to acquire Greenland, and forsaking Ukraine and the Atlantic alliance are anything but that.

Telling us we must endure some pain to get to his Golden Age and that he can’t rule out a recession is fairly reckless for a president in a market economy where expectations are paramount. No small wonder, moods have turned dour.

Also, what’s the objective of all these threatened tariffs? Foreign policy and security concessions or additional revenue to pay for tax cuts? Where is he taking us, and what is the shape of the new order he’s seeking?

His principal advisers are hardly comforting.

For example, Treasury Secretary Bessent says tariffs can’t be inflationary, and the pace of price increases will quickly hit the Federal Reserve’s 2% target.

Surely, he’s seen the Consumer Price Index report, which shows service sector inflation clipping at 4%, and private sector indicators—such as those compiled by the Institute of Supply Chain Management—showing intensifying cost pressures from rising material and component prices on manufacturers and service providers.

Bird flu and egg shortages must be imaginary.

More fundamentally, disruptions to trend growth tend to lay bare structural weaknesses.

American competitive advantages are narrowing as China gains technological parity or leadership in more industries, and the woes of businesses like Boeing and Intel become a national emergency.

Enough about China’s subsidies and protected large market in autos.

Korea’s Hyundai can profitably produce an electric sedan, but GM and Ford can’t. Detroit can’t even profitably produce gas-powered sedans—that’s why it has mostly quit that business.

Neither Mr. Trump’s tariffs nor Mr. Biden’s industrial policies adequately address the fundamentals that keep American manufacturing down, such as shortages of qualified workers, regulatory costs, etc.

Mr. Trump can boost growth again by calming his demeanor, articulating a reasonable tariff policy and tax cuts, promoting immigration reform and vocational training and increasing the federal deficit even further. However, the latter risks higher inflation and interest rates and the dollar’s status as the reserve currency.

Canada could get the last laugh.

As head of the Bank of England, Prime Minister Mark Carney suggested replacing the dollar with a digital currency similar to Meta’s stillborn Libra.

If Mr. Trump doesn’t calm down and instead leaves too much wreckage, we might have to learn the words “Oh, Canada”—after all, we could become the 11th province.

• Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.