Trump’s tariffs trigger alarm over looming recession

The rout on global financial markets continued for a third day on Monday (April 7) in reaction to US President Donald Trump’s unprecedented tariffs on most trading partners of the United States.

Investors are growing increasingly nervous about the prospect of a wider trade war, which would likely spark a global recession.

British Chancellor Rachel Reeves says “a trade war is in nobody’s interests, it is why we must remain pragmatic, cool-headed and pursue the best deal with the United States that is in our national interest. This remains our priority.”

But if this trade war ends up in a tit for tat between China and the United States, everyone will lose, but may thats what Trump wants.

There was a feeling that this was a Trump policy it is not a US one; and if the world can see out the next four years, the damage and relationships may be salvaged. But this correction of the markets to forcibly lower the rates by creating a recession, seems like something that was on agenda years ago.

Could the global economy fall into recession?

They say the tariffs are poised to have far-reaching effects on world economic growth, due to much higher manufacturing costs, falling business confidence, market volatility and supply chain disruptions.

Although the US stock markets regained some lost ground on Monday, Trump may have exacerbated further declines in Asia and Europe at the start of the week by saying that investors would have to deal with the market sell-off for now.

“Sometimes you have to take medicine to fix something,” Trump told reporters aboard AirForce One on Sunday evening.

The big global banks suggest a recession is likely

JP Morgan said last week it believes the odds of a global recession are now at 60% by the end of the year, compared to 40% before Trump’s vast array of tariffs was announced.

JPMorgan Chase CEO Jamie Dimon, meanwhile, wrote in an annual letter to shareholders that “the quicker this issue is resolved, the better because some of the negative effects increase cumulatively over time and would be hard to reverse.”

Deutsche Bank warned in a research note Monday that as Trump doubles down, the new tariffs would have “immense global implications for 2025 and the years and decades ahead.”

Asia was hit much harder than Europe with levies of more than 40% on some key countries, prompting the likes of Vietnam, Taiwan and Indonesia on Sunday to seek new trade deals with Washington.

ABN Amro, one of the largest Dutch banks, last week halved its economic outlook for EU member states, saying it expects the bloc’s quarterly growth to “hover around zero, with a high chance of a negative quarter.”

China is so far the only major economy to order retaliatory tariffs on US imports following last Wednesday’s announcement.

Beijing ordered extra levies of 34% on American goods and put export curbs on some rare earths — vital raw materials needed to produce new tech and clean energy products. Those tariffs are due to take effect this Thursday.

Having hit China with an additional 34% tariff last week, Trump doubled down on Monday, threatening an additional 50% tariff if Beijing doesn’t withdraw its latest tariff increase.

India, which now faces a 26% levy on exports to the US, does not plan to retaliate against Trump’s tariffs, Reuters news agency reported Sunday, citing an unnamed Indian official.

New Delhi has been quick to cut some tariffs on US imports. India was one of the first countries to seek a new trade deal with Washington, during a visit to the White House by Prime Minister Narendra Modi in February.

Imports from the European Union to the US face levies of 20% starting Wednesday. EU finance ministers met in Luxembourg on Monday to agree on around €26 billion ($28.46 billion) of new levies in response to Trump’s earlier 25% tariffs on aluminum and steel.

Ursula von der Leyen, president of the European Commission, the bloc’s executive arm, said Sunday that Brussels was prepared to “defend its interests with proportionate countermeasures.” But she also signaled the EU’s “commitment to engaging in negotiations with the US.”

Some positive news did emerge on Sunday when two Trump advisers told US media that more than 50 countries had been in touch to seek new trade deals with Washington.

Paul Ashworth from Capital Economics said that despite the US president’s defiant rhetoric, Trump would soon realize that he’d gone too far.

“The most likely next step is that Trump will quickly announce a few ‘deals’ that reduce the prohibitive reciprocal tariffs rates on some of the hardest hit countries,” Ashworth wrote in a research note, adding that China “may be the exception.”

What is the current state of the US economy?

The US economy has averaged nearly 3% growth since the end of the COVID-19 pandemic but now faces what research house Morningstar called a “self-inflicted economic catastrophe” as a result of Trump’s tariffs.

S&P Global raised its probability of a US recession to between 30% and 35%, up from 25% in March. Goldman Sachs, meanwhile, increased the chances of a US recession in the next year to 45%, while Barclays and UBS also warned that the US economy may contract in the next few months.

Steve Cochrane, chief Asia-Pacific economist at Moody’s Analytics warned Monday that the US could fall into recession “very quickly” and that it could be “rather lengthy.”

Capital Economics, meanwhile, warned that if Trump is unwilling to make deals with US trade partners, the stock market rout would soon be followed by a “collapse in household and business confidence.”

The UK-based economic research house warned that US inflation could rise above 5% and that the recession would worsen if the US Congress “fails to pass timely fiscal stimulus because of Republican infighting.”

US Federal Reserve boss Jerome Powell last week warned the tariffs would likely cause US inflation to rise and growth to slow. He also mentioned an “elevated” risk of higher unemployment.

Markets are now betting that Powell will soon announce US rate cuts earlier than previously expected.

Will the tariffs disrupt China’s growth?

Trump’s tariffs are widely expected to hinder China’s economy, by disrupting export activities and causing substantial market volatility.

Beijing is expected to implement monetary and fiscal measures to offset the additional tariff and the People’s Daily, the Communist Party’s mouthpiece newspaper, tried to reassure Chinese readers that “the sky won’t fall…  even if the US tariffs have an impact.”

China’s Foreign Ministry on Monday criticized Trump’s tariffs as “economic bullying” and “inconsistent with international trade rules,” urging the US to resolve trade tensions in a mutually beneficial way.

Foreign Ministry spokesperson Lin Jian refused to say whether Chinese President Xi Jinping would seek talks with Trump to resolve the trade war.

Trump has ruled out a deal with China until the US trade deficit with the world’s second-largest economy is resolved. The Trump administration has defended the punitive tariffs as necessary for correcting imbalances between the US and its major trading partners.

Goldman Sachs said in a report Sunday that it had planned to upgrade its growth forecast for China before Trump’s tariffs were announced. Goldman said the new levies would lower Chinese GDP growth by at least 0.7 percentage points this year.

Kaiyuan Securities said it expects the tariffs could slash Chinese exports to the US by almost a third, cut overall exports by more than 4.5%, and drag economic growth by 1.3 percentage points.

Cochrane from Moody’s Analytics warned that China would certainly feel economic pain “because demand for its goods will be hit even harder [than the US].”

Deutsche Bank noted how China has gone from manufacturing 5% of global goods to 32% in thirty years while US-produced goods have fallen by more than a third to 15%.

The US exported $144.6 billion (€132 billion) in goods to China in 2024, much less than the $439.7 billion it imported, China’s Commerce Department data showed.