National Economic Council Director Kevin Hassett speaks as U.S. President Donald Trump listens during the announcement of new fuel economy standards, in the Oval Office at the White House in Washington, D.C., U.S., December 3, 2025. REUTERS/Brian Snyder
During former President Joe Biden's four years in the White House, liberal economist and former New York Times columnist Paul Krugman repeatedly praised his economic record — emphasizing that the United States enjoyed record-low unemployment rates under Biden's watch. Biden, Krugman notes, inherited a deadly pandemic that ultimately killed more than 1 million Americans, yet in early 2023, U.S. unemployment was as low as 3.4 percent, according to the U.S. Bureau of Labor Statistics (BLS).
But frustration over inflation, polls showed, gave Donald Trump an advantage in the 2024 election, and he defeated Democratic nominee Kamala Harris by roughly 1.5 percent in the national popular vote. Now, ten and one-half months into Trump's second presidency, Krugman is warning that a variety of Trump policies — from steep new tariffs to compromising the independence of the U.S. Federal Reserve — are putting the U.S. economy in grave danger.
The United States, in late 2025, isn't in a recession. But in an opinion column published on December 4, Hamish McRae — a columnist for the i Paper in the UK — lays out some reasons why the U.S. could face a recession in 2026.
"The American economy is heading for trouble, and it may go into recession next year," McRae warns. "If that happens, it would be bad news for the rest of us, including the UK. That old adage still applies: when the U.S. sneezes, Europe catches a cold. At first sight, that might seem an overly pessimistic outlook. U.S. shares are still close to their all-time highs, with the S&P 500 index up 16 per cent this year. Unemployment, at 4.4 per cent, is the highest since 2021, but is only creeping upwards. And while consumer confidence fell sharply last month, that was probably associated with the government shutdown, which is now over."
McRae goes on to list some "powerful reasons to expect things to slow down sharply in the coming months."
"One is that the stock market boom has been driven by its technology giants, with the top 10 companies accounting for more than one-third of the total capitalization, up from 18 per cent 10 years ago," the i Paper columnist explains. "Another is that U.S. house prices have weakened. They are not facing an overall collapse, though in some regions, notably Florida, they are very soft. But the big rises of recent years have come to an end, and prices overall are expected to run behind pay increases. The greatest concern, however, is what artificial intelligence will do to the job market. In the long-run it is clear that AI will give a huge boost to the overall efficiency of the world economy, and since the U.S. is in the forefront of its development, it should in theory at least be the principal beneficiary. But in the short-run, it is killing jobs."
McRae adds, "An analysis by a U.S. firm, Challenger, Gray & Christmas showed that AI was cited in U.S. company reports and presentations in enabling a headcount reduction of nearly 50,000 jobs this year. Some 31,000 of those were cut in October alone."
The British columnist stresses that if the U.S. goes into a recession, there is no way the UK won't be affected by it.
"First, the chances are that recession would pop the equity bubble in America and would inevitably affect share prices in London too," McRae argues. "Not a catastrophe, for our markets are much more reasonably valued than the U.S. ones. But it would cast a cloud. Second, any economic slowdown in the U.S. affects our economy directly because it is our largest single export market, though smaller than the EU as a whole. Third, the forces that are cutting jobs there are the same as those affecting employment here."
Hamish McRae's full i Paper column is available at this link.