US tariffs have raised recession risk to 40-50% over the next year, and if maintained, they will permanently reduce US real GDP and living standards. The 25.5% average tariff rate is the highest in over a century, with forecasts suggesting it will fall to 18% by 2025 and further decline in coming years.
The short-term impact of tariffs will be more severe, with a 0.7 point reduction in 2025 GDP growth and 0.9 points in 2026. However, some catch-up growth is possible if tariffs are lifted, alleviating uncertainty. Recession risk has increased due to the permanent reduction in US real GDP.
The author believes that tariffs will have a more recessionary impact than inflationary, as contraction in demand could exceed disruption to supply. If all tariff revenue is used for new tax cuts, it would be more inflationary.
The Fed may need to put interest rate cuts on hold if the tariff shock is more inflationary. Despite this, there is still a 40-50% chance of recession over the next year, highlighting the long-term economic implications of these tariffs.
Source: https://www.morningstar.com/economy/tariffs-are-self-inflicted-economic-catastrophe