Could Trump’s Tariffs Trigger a Global Recession? | Money News

Last week, President Donald Trump’s “Liberation Day” tariffs sent shockwaves through the markets.

On Monday, stock markets plummeted, with most US markets experiencing declines and stocks in Hong Kong crashing 13.2%, marking their worst performance since 1997 during the Asian financial crisis.

While there was marginal growth in Asian and UK markets on Tuesday, a full recovery seems distant following significant drops in response to Mr. Trump’s newly announced tariffs on imported goods to the US, which he proclaimed last week.

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Goldman Sachs economists have raised their forecast for the likelihood of the US economy slipping into recession to 45%, up from 35% the previous week.

If tariffs are not alleviated or renegotiated, Goldman’s chief economist Jan Hatzius indicated that they would revise their projections to reflect a recession.

Other economists are sounding similar warnings, with JPMorgan estimating a 60% chance of a US and global recession and predicting inflation will surge to 4.4% by year-end, up from the current 2.8%.

How can you determine if a recession has begun?

The typical definition of a recession encompasses two consecutive quarters of economic contraction—known as “negative growth”—in gross domestic product (GDP).

To clarify, GDP reflects the total value of goods and services produced within a specific timeframe. When GDP rises, the economy is deemed healthy.

Conversely, a decline—negative growth or economic contraction—signals poor performance, and a sustained downturn lasting six months qualifies as a recession.

In the US, the National Bureau of Economic Research is responsible for officially declaring a recession, taking into account various economic indicators beyond just GDP, defining it as “a significant decline in economic activity that is widespread and lasts for more than a few months”.

Currently, there are no indications that the US or global economy is in recession, and the extent to which tariffs will significantly affect the US economy remains uncertain.

However, it is this uncertainty that could potentially inflict the most harm.

“People are feeling lost,” Sky News Business Live presenter Darren McCaffrey shared on the Sky News Daily podcast.

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“No one can quite figure out whether President Trump is seeking a genuine overhaul of globalization, and what that would mean for the US and the global stage, or whether these tariffs are merely a negotiating strategy.

“That’s the unanswered question. This uncertainty is challenging and could lead to damage.”

Stockbroker Russ Mould pointed out that markets are hopeful that the Trump administration uses tariffs to secure better trade agreements with current partners. Should this occur, it could help return global trade to its established patterns from preceding decades.

What implications could a global recession have?

If both the US and the global economy plunge into recession—even if the UK escapes—it would “fundamentally mean we will all face diminished prosperity ahead,” McCaffrey warned.

He emphasized that the UK has not experienced a sustained phase of significant economic growth for an extended period—impeded by the 2008 financial crisis, the upheaval from Brexit, the COVID pandemic, the Ukraine conflict, and now the imposition of tariffs by the US.

Nevertheless, there are reasons for cautious optimism.

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“Markets always adapt,” McCaffrey remarked.

The US stands as the world’s largest economy, yet it comprises only 13% of global trade. Nations like China, Vietnam, and Cambodia facing high tariffs will seek new markets. In the short-to-medium term, the UK could benefit from this shift.

This scenario will compel major trading blocs—most notably the EU—to explore new trading opportunities. Canada has also indicated interest in pursuing a trade agreement with the UK.

The brunt of the economic hit will likely fall on the US, as other countries may gravitate towards more stable trading partners. In economics, as always, there are both beneficiaries and those who bear the losses; ultimately, markets will adjust to accommodate the influx of goods.

What strategies can the UK employ to brace for a potential recession?

Opting against retaliatory tariffs, the UK hopes to negotiate a post-Brexit trade deal with the US, Russ Mould noted, characterizing that as the “UK’s primary objective”.

If the UK faces prolonged tariffs, Mould advised considering trade agreements with other nations.

He stated: “Statistics show that a staggering 87% of global trade does not involve the US, suggesting potential avenues for trade deals with nations that also feel impacted by tariffs. India is likely to be a prime candidate on that list.

The key point is how quickly can these trade agreements be finalized, especially considering the UK’s efforts over the past five years have not yielded substantial results.”

Read further:
All you need to know about Trump’s tariffs
What actions China may take as Trump’s tariff conflict escalates
A major economic upheaval is occurring attributable to Trump

Mr. Mould concluded by stating that the formula for economic expansion in any market hinges on growth in the labor force in combination with gains in productivity.

“When it comes to productivity, [leaders] should probably explore targeted tax incentives for investment and promoting research and development. Long-term advantages may also arise from focusing on infrastructure and transportation access,” Mr. Mould noted.

“When it comes to fostering labor participation, discussions delve into areas like education or tax incentives for childcare. All these represent very long-term solutions to an imminent challenge.”

Listen to the complete Sky News Daily episode here