Donald Trump has unleashed a trade war that threatens to tank the global economy. His zigzags on tariffs have caused economists to repeatedly adjust their projections of whether we’ll see a recession this year.
But recessions are always officially declared after they have begun. By some estimates the US is already in a recession. The US economy contracted by 0.3% in the first quarter of 2025. Retail spending has weakened. Tariffs have not yet caused a jump in inflation, largely because U.S. companies stocked up on foreign products before the tariffs kicked in. But once those stockpiles run out, prices will rise. The anticipation of rising prices caused US consumer sentiment to drop in April to the second-lowest level ever recorded, worse than during the Great Recession or the pandemic-triggered recession of 2020.
Even if the U.S. manages to evade a recession in the near-term, it’s unlikely to escape the broader trends of slow economic growth and rising inflation. This could result in stagflation, which would mean a period of high unemployment, high prices, and increasingly difficult to control inflation. Slow growth and recession in the US will drag down the global economy.
Trump may very well light the spark that ignites a recession, but economic downturns are baked into the capitalist system no matter what Trump does.
Capitalism’s Boom-Bust Cycle
Capitalists, the owners of the means of production, see economic crises as a departure from the normal functioning of their system. Marxists view crises as inherent to how capitalism functions. There are underlying contradictions of capitalist production which must be solved through crises. The story of capitalism is one of repeating cycles of expanded production, overaccumulation of capital, economic crisis, and depression.
Under capitalism, production is unplanned and driven by the search for profits, not the needs of society. The logic of capitalism requires constant growth: businesses must compete with one another for greater control of markets and greater profit margins or they will be gobbled up by their competitors. Yet there is no guarantee that the goods produced will be profitably sold because production does not take society’s needs into account.
During a boom, when the economy is growing and capitalists are expanding production, businesses’ demand for machinery, technology, and raw materials tends to outpace supply. Lower unemployment leads to increased consumer demand as well. The growth of demand drives an expansion of production and thereby bigger profits. The promise of increased profits then attracts more investment, often leading to wild speculation and the creation of market bubbles.
Profits come from exploiting labor, not shrewd business tactics. There are limitations on demand under an economic system where bosses pay workers less than the real value of their labor and constantly attempt to drive down wages. When demand slows and the market reaches a saturation point, expansion of an industry hits a wall. Businesses are slow to correct for their overproduction because they look at current prices and profits to determine future production, lagging far behind actual supply and demand. This can lead to steep drops in prices, with businesses selling at a loss. The boom turns into a bust.
What the socialist economist Karl Marx called overaccumulation of capital takes place when capitalists can’t find avenues to productively invest their profits. Production is reduced once profits dry up, and factories may run below capacity or stop running completely. The capital (buildings, machinery, land, etc.) that capitalists own ceases to be capital if it’s not being used. Factories transform from profit-generators into little more than piles of bricks. Profits can also be squeezed by capitalism’s tendency to increase investment in labor-saving technology thereby pushing out workers, the source of profits, from production.
A slump can easily spread from one industry to another and drag down the wider economy. For example, if the housing market is oversaturated, construction companies will stop investing in new projects, regardless of whether or not people need shelter. As development sites lay motionless, demand for lumber, machinery, and other materials plummets. Workers in affected industries may be laid off, which leads to lower demand for many goods.
When productive investment is not an option, capitalists have increasingly funneled billions into risky financial instruments, repackaging debts and credit into commodities to buy and sell. We saw this reach a fever pitch during the subprime mortgage crisis which triggered the Great Recession of 2007-9. This artificially extended the housing boom, provoking an even greater collapse of the world economy.
A recession restores profitability through the destruction of capital and a clearing of the playing field, with disastrous consequences for the working class. The capitalist class always tries to pass the burden onto the working class, like we saw in 2008-9: bailouts for the bankers, foreclosures and layoffs for working people. For the capitalists that make it through the gauntlet of bankruptcies and plant closures, economic crises eventually give way to a new round of expansion. They buy up their failed competitors, sweep up factories and land at steep discounts, and find it easier to force lower wages onto workers due to higher unemployment.
There’s No “Final Crisis” for Capitalism
The manner in which capitalist crises are resolved merely lays the basis for the next crisis. The system’s contradictions and instability tends to deepen over time. For example, personal credit offers a way for capitalists to increase their profits by paying workers less and obliging them to take on massive consumer debt—US credit card debt reached an all-time high in February, with average household credit card debt standing at nearly $9,000. The problem of excessive debt first emerged during the 1973-1975 recession, with government, business, and consumer debt ballooning worldwide during the economic crises that followed.
Unsustainable debt levels, inter-imperialist rivalry, protectionist trade policies, military conflicts, and climate change all make capitalism increasingly crisis-prone today. The coming world recession could be as severe or more severe than 2008. The underlying causes of the Great Recession have only since been exacerbated. And unlike in 2008, today there’s no single dominant world power capable of leading a global economic recovery. Instead, the world economy is being destabilized by a power struggle between the two major imperialist powers, China and the US.
After a recession, the start of a new cycle of capitalist production can momentarily address the system’s contradictions, but it cannot fundamentally resolve them. Lurching from one crisis to the next does long-term damage to the system which neither the capitalists nor their corporate parties can repair. The only way to break out of this downward spiral is to change the system entirely.
Economic crises wreak havoc on the working class, but they also expose the limitations of the existing system and can unleash struggles against it. The ‘08 crisis created a stunning effect as the working class dealt with the fallout of the recession, but in 2011 protests emerged in the U.S. in the form of Occupy Wall Street. Those protests, along with the revolutionary events in the Middle East, North Africa, and the massive protests and general strikes in Southern Europe, kicked off a decade chock-full of struggles against attempts to place the burden of the crisis onto the working class.
This time around, we should expect less of a stunning effect and potentially even more explosive anger from the working class. The memory of the Great Recession left a deep imprint on consciousness, defining the Millennial generation. New generations of workers and youth are faced with an even worse economic outlook, saddled with rising inflation and debt levels. To reverse the skyrocketing cost of living that promises to worsen with a new recession, workers worldwide need to break out of capitalism’s cycle of crisis by overthrowing this profit-driven system once and for all, replacing it with a democratically-planned global socialist economy dictated by human need.