“The effect of this tax hike is likely to be magnified — through retaliation, a slide in US business sentiment, and supply chain disruptions,” he warned, adding that his firm now sees the risk of a US recession at 60%, up from its previous 40%, if the tariffs remain.
He is not alone; a survey of economists by Bloomberg following the tariff announcement reveals that more than nine in ten of the 54 respondents believe that a US economic downturn in the next 12 months is now a greater possibility. A similar share expects inflation to increase, and 93% think GDP will be lower.
Six in ten economists who took part think that the tariffs will increase the efforts of trading partners to ink new trade agreements with the US.
But while any potential deals are being worked out, uncertainty remains, and Michael Arone, chief investment strategist, US SPDR Business, State Street Global Advisors, told WP that, in the meantime, market participants are not willing to wait and see.
“Instead, investors are selling first and asking questions later,” he said. “If, and it’s a big if, Trump’s reciprocal tariffs result in lower overall global trade barriers, risk assets will rebound swiftly. But if our trading partners retaliate and pursue countermeasures, economic growth will plunge and markets likely will too.”