Trump tariffs worse than anticipated, raise recession risks, analysts say

Investing.com-- Analysts see U.S. President Donald Trump’s recent sweeping universal and reciprocal tariffs as worse than expected, with some warning that the trade shocks increase the risk of a U.S. and global recession. 

Trump on Wednesday announced a 10% tariff on all U.S. imports, and imposed tariffs against select countries equivalent to about half of the duties they charge on U.S. goods. 

China was by far the worst hit, with total U.S. tariffs against the country now amounting to 54%. The European Union will be subject to 20% tariffs, while Taiwan, Switzerland, Thailand, and Bangladesh will face between 30% and 50% tariffs. 

The tariffs will take effect over the next week. 

Imports of copper, lumber, gold, pharmaceuticals, and some critical minerals will be exempt from the tariffs. Trump’s 25% duties on automobiles will also take effect this week. 

Full implementation of tariffs threaten recession- JPM 

JPMorgan analysts said that they were still waiting to see just how Trump’s tariffs will be imposed in the coming days before making any changes to their forecasts.

But JPM analysts warned that the full implementation of Trump’s trade policies represented a “substantial macro economic shock not currently incorporated in our forecasts.”

“This shock will likely be magnified by its impact on sentiment and through the retaliation of countries facing significant increases in their tariff rates,” JPM analysts wrote in a note, warning that a large tariff shock threatened a U.S. and global recession.

Trump tariff blow bigger than expected- Capital Economics 

Trump’s reciprocal tariffs were bigger than expected, Capital Economics analysts said, with the effective tariff rate on all U.S. imports expected to soar to 26%, a 131-year high. 

CE said that Canada and Mexico had gotten off lightly, while Asian majors such as China and Vietnam were the worst hit. Japan and the EU were somewhere in the middle. 

CE noted that while the tariffs stood to substantially boost U.S. tax revenue, the impact on the U.S. economy depended on what is done with the additional tax revenue. 

“If it is given back to consumers via other tax cuts, then economic growth may not suffer too badly. If it is used to pay down the budget deficit, then this amounts to a fiscal tightening of more than 2%, which means the economy would be lucky to avoid a recession,” CE analysts wrote in a note. 

Well Fargo sees ‘considerably more’ Fed easing in 2025-26 due to tariffs 

Well Fargo analysts said that the tariffs were larger than expected, and were certainly above market expectations as well. 

The tariffs are likely to be perceived as negative for the U.S. economy and the targeted countries. 

But WFC also forecast “considerably more” easing by the Federal Reserve through mid-2025 to mid-2026, with a bulk of this likely to be priced in for the first half of 2026.

WFC expects little additional easing in the next few Fed meetings, with officials having signaled reluctance to ease interest rates any time soon. 

EU, UK recession risk increases with tariffs- Barclays (LON:BARC)

Barclays analysts said that the new tariffs dampened the global economic outlook, and also put the UK and several European countries at the risk of a recession in the second half of 2025. 

The investment bank said it was still waiting on retaliatory measures from target countries, but that Trump’s move had further increased global trade policy uncertainty and dampened the economic outlook. 

“The extraordinary increase in trade policy uncertainty that the change in tariffs is generating (via the so-called uncertainty channel) delays investment and consumption decisions,leading to a decline in domestic demand and a sizable slowdown in economic activity,” Barclays analysts wrote in a note. 

Barclays’ current economic forecasts see a gross domestic product impact of about 1.1% for the UK and the EU. But this could increase to about 1.9% for Europe and 1.5% for the UK.