Trump's tariffs ease, but the probability of a U.S. recession more than doubles

Source: Jinshi Data

US President Trump's willingness to ease the trade war has not only triggered a surge in US stocks, but also reduced the possibility of a recession - at least for now.

China and the United States reached an important consensus on a trade agreement last week, and Trump's tit-for-tat in April triggered market concerns about a global recession. The current truce has caused Wall Street to breathe a collective sigh of relief and has become a catalyst for the stock market recovery.

"I think the risk of a recession looks much lower than it was a month ago," said Bill Adams, chief economist at Comerica Bank.

However, the road ahead for the economy is by no means smooth.

On the one hand, the ongoing trade war is not over.After the 90-day suspension period,Trump may change his mind.Even with the recent reduction,the current US tariff level will remain at the highest level in decades.

“While the news on trade is certainly not that bad, it is far from reassuring,” said Douglas Porter, chief economist at BMO Capital Markets.

What’s more, the uncertainty generated by the trade conflict has made households and businesses hesitant to spend, hire and invest.Confidence has plummeted in recent months, and the anxiety among American consumers is unlikely to subside soon.

The result: Economists expect the U.S. economy to slow sharply this year, even if the threat of a recession has receded. That was evident in the first quarter, when growth rates fell for the first time since 2022.

“While a recession is no longer our baseline scenario over the next 12 months due to recent tariff cuts, the likelihood that the U.S. economy will experience several quarters of subdued growth has increased,” RSM U.S. economist Tuan Nguyen wrote in a note to clients.

A new survey of top Wall Street economists compiled by the Philadelphia Federal Reserve shows that the U.S. economy will slow to its slowest pace in 16 years if the coronavirus pandemic is excluded.

Forecasters expect U.S. gross domestic product to grow 1.4% in 2025. That’s a sharp drop from the 2.4% growth rate expected before the trade war.

By contrast, the U.S. economy grows at a robust 2.8% in 2024 and 2.9% in 2023, well above what is considered the economy’s highest sustainable pace.

Slower growth, in turn, could lead to higher unemployment, while higher tariff levels could spur a small increase in inflation, economists predict.

Such vulnerability leaves the odds of a U.S. recession high even after the recent tariff cuts.

Economists see a 37% chance of a U.S. downturn in the next 12 months, compared with just 15.4% in the last Philadelphia Fed survey, conducted in early 2025.

Some top business leaders and Wall Street investors are also reluctant to say the danger is over.

JPMorgan Chase & Co. CEO and influential banker Jamie Dimon said Thursday he would not “rule out” a recession at this time.

Stephen Cohen, a prominent investment manager and owner of Major League Baseball’s New York Mets, put the odds of a recession at 45%. “I think we’re going to have a significant slowdown in growth,” he said at an investor conference in New York.

Mainstream citizens, however, appear less concerned.

Google searches for the word “recession” jumped to a three-year high in March and April but have fallen sharply since the Trump White House began rolling back tariffs. Searches are back to lows seen a few months ago before the trade war began.