Three months ago, I released an economic forecast that I called “the best for Indiana in the 17 years I’ve been doing forecasts.” Sadly, I am revising it to what appears to be the worst forecast of the past 17 years—and maybe the worst postwar economic shock to our state.

I said in January the U.S. achieved a soft landing—purging inflation from the economy without a big loss of employment. My forecast was for growth nationwide to range from 2.3% to 2.5% for 2025, while inflation would drop to the Fed’s target level of under 2.5%.

I also predicted Indiana would do well, with growth in the 2.1% to 2.2% range and employment growing by 37,000 jobs this year. That is a darned good forecast given the Fed’s tightening of interest rates in 2022 through 2024.

Sadly, that will not come to pass. My new forecast, completed in late April, predicts a national recession began as early as March. The sole cause is the extraordinary and volatile tariffs imposed by President Trump as part of his emergency declaration.

My new forecast, based on a large structural forecasting model, had the U.S. economy stalling in the first quarter, with growth somewhere between 0% and 0.3%.

Astute readers will know that this forecast is already too optimistic. In the days since I did my forecast, new data has become available, showing the U.S. economy shrank by 0.3% in the first three months of 2025. That is an inauspicious start, suggesting it will be worse than I predicted.

I estimated that the U.S. economy would shrink in each of the next three quarters, and that Indiana’s economy would follow. By the last three months of 2025, I predicted growth to drop by 4.1%, ending the year with an economy that shrank by just over 2%, and cost the state 55,000 jobs.

That’s a pretty tough recession, but again, it is already proving to be too optimistic. The anecdotal evidence is pointing to a much more rapid, and deeper, downturn than a forecast that relies upon weeks-old or months-old data would suggest.

For example, since January 20th, when Trump announced his trade war, help wanted advertisements in Indiana are down by more than 25%. For factory and logistics jobs in our state, help wanted ads are down 35%.

This decline looks like the labor markets for tourism venues in late March through May of 2020—the height of COVID-19. This alone suggests the U.S. is on the precipice of a broad and deep economic downturn.

The shock will be far different than most downturns—reminiscent more of the early days of the pandemic than anything else. Over the longer term, this will most resemble the 2008-09 downturn. This is how I think it will play out.

The last non-tariffed products have hit U.S. ports. Arrivals now cost anywhere from 20% to 155% more. Part of this is due to tariffs, and part of this is due to the weakening value of the dollar. At the high end of this cost range, domestic buyers have ceased to buy imports.

The immediate effect will be to raise prices. The Yale Budget Lab estimates the short-term cost of tariffs at roughly $4,600 for the average family or about 5.7% of the average Hoosier household. The short term is years, not months.

Importantly, the tariff burden is disproportionately borne by younger and poorer households. They will be unable to buy homes and are more likely to lose jobs. It isn’t fair, but that is the way of the world.

However, most of the damage will come to us on the production side, not the consumer side. Most imported goods into the U.S. are intermediate goods used in manufacturing. This leads to real economic damage.

An American-made car has maybe 30,000 parts, of which 10,000-15,000 are imported. Each imported part could be assembled from parts sourced across dozens of countries. This is one of the great marvels of a modern economy. But, if you take one or two of these parts out of production, the car cannot be finished. That was the supply chain problem that led to inflation spiking in 2021.

Auto firms will pay the tariffs—now ranging from 10% to 145%—on about one-third of parts. That’ll add maybe 15% to the cost of a new car. Sales of new cars will drop 5%-10%, which is a recession nationwide and a catastrophe in the Midwest. By July, auto assembly in the U.S. will contract, partially due to supply disruptions and partially due to lower demand. This will be like the summer of 2008 for the American auto industry.

There’s also a long-term component to consider. Anyone trading with U.S. firms will be reconsidering supply chains. So, a free trade structure built over 80 years—of which we are the biggest beneficiaries—is now unwinding. This shock to our economy could be long-lasting, potentially permanent.

Our trading partners will suffer as well. But, remember, each of them is in a trade war with one country; we are in a trade war with 189 of 193 countries.

The retaliation from 2018 caused the U.S. to become a net importer of food for the first time in maybe 350 years. The next round of retaliation will be crippling.

Congress gave John F. Kennedy this tariff authority during the height of the Cold War. Until 2018, it has been used sparingly. Congress will remove this authority (section 232 of the Trade Act of 1962). The only question is when it will find the courage. My guess is after the next election.

Trump might fold after a bad jobs report or two, but he has become erratic and bizarre in a way that cannot be wholly undone.

Americans have two more disadvantages in what will be a global downturn. First, we have no real fiscal capacity to stimulate the economy—and that doesn’t work on a supply chain issue. Second, the Federal Reserve will not cut interest rates as long as prices are rising—and prices will rise for months.

What should have been a summer of solid growth will instead see the U.S. economy moving into a deep recession. No one should be surprised by this. Project 2025 made clear that Trump would start a trade war. This trade war is inexplicably stupid, malevolent and will be deeply damaging to both the short- and long-run economic prospects of the U.S.

The one thing it is not is unexpected.