US President Donald Trump’s “liberation day” tariffs have raised concerns about a severe risk of recession in the US economy. Analysts warn that the 10% baseline duty and double-digit top-up tariffs on major partners like China and the EU would drive up prices, damage business investment, and deepen the risk of high inflation and weak growth.
Economists forecast that the US tariff rate on all imports would be 22%, putting it at the highest level since 1910. This is a “game changer” for the US economy and the world at large, according to Olu Sonola, head of US economic research at Fitch Ratings.
The chances of a US recession over the next 12 months are materially higher due to the decisions last night, said Simon French, chief economist at Panmure Liberum. After Trump’s tariffs announcement, the dollar fell 1.7% against a basket of trading partners’ currencies by early Thursday afternoon European time.
Forecasters warn that the hit to the US economy from Trump’s new tariffs would materialize via several channels. Companies will not pass on 100% of the extra costs to households, but US consumers will fail to escape the sweeping scope of the tariffs.
The imposition of tariffs is expected to add $1,350 of extra costs for every American, depending on the degree of pass-through by businesses to their consumers, estimated James Knightley, US economist at ING.
Marc Giannoni, economist at Barclays, forecast that the US economy would contract 0.1% year on year in the final three months of 2025, consistent with a recession, and the unemployment rate would rise to 4.6% by the fourth quarter.
Business confidence has already suffered given the volatility of Trump’s trade policies, and uncertainty will continue to drag on investment amid a period of protracted negotiations with US partners that will now ensue.
The impact of tariffs on US growth will also depend heavily on how much of the package actually goes into place, how quickly elements get dialled back as a result of negotiations with partners, and whether Trump delays or dials back the “reciprocal” element of the tariffs.
Source: https://www.ft.com/content/ddfd63c0-2284-4eff-8761-4db950ae637c