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Investing.com -- JPMorgan has raised the probability of a global recession this year to 60%, driven by the economic shock stemming from a sweeping U.S. tariff hike announced on Liberation Day.
The move marks the largest tax increase on U.S. households and businesses since 1968, and could trigger a significant downturn if fully implemented, the Wall Street giant warns.
The new tariff regime includes a baseline 10% levy on all imports, with higher rates—up to 20% or more—targeted at countries running trade surpluses with the U.S., notably China and the European Union (EU).
JPMorgan estimates this will lift the average effective tariff rate by 22 percentage points, translating to a $700 billion tax increase, or 2.4% of GDP.
“A hike of this size would be on par with the largest tax hike since WWII,” JPMorgan economists led by Bruce Kasman said.
They caution that the direct economic impact is likely to be amplified by secondary effects, including retaliation from trading partners, negative shocks to business sentiment, and disruptions in global supply chains.
Such blows could erode household purchasing power and prompt a pullback in spending.
“The current positioning of the U.S. and global expansion points to limited vulnerability that might suggest a relatively mild downturn. But recessions are inherently unpredictable,” economists wrote.
“Another important concern is that sustained restrictive trade policies and reduced immigration flows may impose lasting supply costs that will lower U.S. growth over the long run,” they added.
The firm’s revised scenario tree sees a 60% likelihood of global recession, up from 40% previously. The probability of a “Goldilocks” outcome—characterized by balanced growth and normalized inflation—has been cut to just 10%.
JPMorgan is not immediately altering its forecasts, instead opting to monitor how the new policies are implemented and negotiated. However, it warned that without a reversal, the current trajectory “would likely push the U.S. and possibly global economy into recession this year.”
The economists also flagged that while fiscal and monetary easing may follow, these steps are expected to only “modestly cushion the shock.” The economic impact is likely to hit emerging markets hard, particularly in Asia, where export dependence remains high and exposure to new U.S. tariffs is most severe.