The reciprocal tariffs announced by US President Donald Trump have raised fears of global recession amid a strong market crash.
“We now expect real GDP to contract under the weight of the tariffs, and for the full year (4Q/4Q) we now look for real GDP growth of -0.3%, down from 1.3% previously,” according to a report by Bloomberg citing JPMorgan Chase & Co chief US economist, Michael Feroli.
“The forecasted contraction in economic activity is expected to depress hiring and over time to lift the unemployment rate to 5.3%,” Feroli added.
Trump’s tariff announcement & China’s response
Donald Trump, on April 2, announced to impose a 10% baseline tariff on all imports, while separate rates were announced for certain trading partners. As a retaliatory measure, China on Friday, April 4 announced to impose an additional 34% tariff on all goods imported from the United States. Trump announced to impose 34% reciprocal tariff on China.
“China Played It Wrong, They Panicked – The One Thing They Cannot Afford To Do!” said US President Donald Trump in his social media post on Truth Social after China’s tariff announcement.
US Markets react
Following China’s announcement, the S&P 500 lost 6 per cent. This drop closed the worst week for the S&P 500 since March 2020, when the pandemic ripped through the global economy. The Dow Jones Industrial Average fell 2,231 points or 5.5%, and the Nasdaq composite plunged. 5.8% to pull more than 20% below its record set in December.
Meanwhile, US Stock Market wipes out over $5 trillion in Trump’s tariff war.
Jerome Powell’s concern over slow growth and inflation
On Friday, Federal Reserve Chair Jerome Powell indicated that a trade war may cause more damage than expected, including higher inflation and slower growth.
“We face a highly uncertain outlook with elevated risks of both higher unemployment and higher inflation,” he said.
However, he mentioned that there is no hurry to cut rates.
“To me, it’s not clear at this time what the appropriate path for monetary policy will be, and we’re going to need to wait and see how this plays out before we can,” Powell said.
What do experts say?
“We are rapidly headed towards recession,” Peter Tchir, head of macro strategies at Academy Securities told Bloomberg. “The world was prepared for ‘reciprocal tariffs.’ Whatever the abomination that was launched at the Rose Garden was, it is a disaster — mostly for the US, but also for the global economy,” Tchir added.
“If the 25% tariff is fully implemented quickly and largely maintained, and U.S. trading partners retaliate approximately tit-for-tat, the U.S. and global economies will not suffer a depression, but they will suffer serious recessions,” Mark Zandi, Chief Economist at Moody’s Analytics wrote on X.
“The recession will hit imminently and extend until next year. Real GDP will fall close to 2% peak to trough, and unemployment will increase from its current 4% to 7.5% at its peak next year. I attach a 15% probability to this dark scenario,” Zandi added.
Federal Reserve may cut rates
JP Morgan & Co. also expects the Federal Reserve to cut the benchmark interest rate in June and subsequently bring the rate to a 2.75% to 3% range by January from the current 4.25% to 4.5% range following the reciprocal tariffs.
Trump on FED rate cuts
US President Donald Trump urged Powell to cut the key benchmark interest rates. He cited low inflation and higher job rates as the “perfect time” for such as move.
“This would be a PERFECT time for Fed Chairman Jerome Powell to cut Interest Rates. He is always ‘late,’ but he could now change his image, and quickly. Energy prices are down, Interest Rates are down, Inflation is down, even Eggs are down 69%, and Jobs are UP, all within two months – A BIG WIN for America. CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!” said Trump in his post.
“We are rapidly headed towards recession,” said Peter Tchir, head of macro strategies at Academy Securities. “The world was prepared for ‘reciprocal tariffs.’ Whatever the abomination that was launched at the Rose Garden was, it is a disaster — mostly for the US, but also for the global economy.”
