At a Glance

  • Moody's chief economist Mark Zandi said Thursday that the comprehensive global tariff policy implemented by the Trump administration has pushed the U.S. economy to the brink of recession, with a 60% probability of recession.
  • Zandi said: "The U.S. is under heavy pressure from economic policy, especially the global trade war. If the trade war does not ease soon - and I mean within weeks, not months - I believe the probability of the U.S. economy and most of the global economy falling into recession is high, more than 50%."
  • Speaking on an Economic Club of New York webcast, Zandi said import tariffs imposed on nearly all U.S. trading partners could push up unemployment and could raise inflation by as much as 2 percentage points. Other damage, such as declining business and household optimism, falling consumer spending, and plunging stock markets, would be "very powerful, possibly more powerful than in the past."

In-Depth Analysis

Moody's is one of several institutions that have downgraded economic forecasts since Donald Trump announced sweeping import tariffs earlier this month. JPMorgan also sees a 60% probability of a U.S. recession in 2025.

The economy had already slowed in the first quarter before Trump fully implemented his long-promised global tariffs via executive order on April 2. Weak manufacturing and household spending, along with declining consumer and business confidence, were among several factors that led the Atlanta Federal Reserve to estimate Thursday that first-quarter gross domestic product contracted by 2.2%, compared with growth of 2.4% in the fourth quarter.

Trump administration trade officials have begun negotiations with counterparts in several countries that received a 90-day reprieve from high tariffs on April 9. A 10% baseline tariff still applies to goods from most U.S. trading partners, while tariffs on Chinese imports stand at 145%.

"Every country, including China, wants to meet!" Trump said in a social media post Thursday, referring to trade negotiations. He has said for months that import tariffs would help create jobs, revitalize American manufacturing, and improve the U.S. fiscal outlook.

Zandi said the stakes are high for Trump's future tariff decisions. "The economy is on the brink of recession, and unless there is a sharp policy reversal soon, it is very likely to fall into recession," he said.

Former Treasury Secretary Lawrence Summers warned Thursday of four major costs of tariffs. "This is a major stagflationary shock," he said, predicting that import tariffs would push up prices and weaken spending, employment, and economic growth.

First, import tariffs would impose a tax of more than $4,800 on U.S. households in the short term, with long-term losses of about half that amount, Summers said, citing research from the Yale Budget Lab. To put it another way, the damage to consumers could be equivalent to a doubling of oil prices, he said.

Second, Trump's protectionist trade policies also "invite a financial crisis," Summers said on a Peterson Institute for International Economics webcast. The tariff policy "has shifted the pattern in U.S. financial markets from the traditional bulwark of the global economy - stocks down, bonds up, people seeking insurance - to the traditional emerging market paradigm, where stocks are down accompanied by rising bond yields and aversion to the local currency, which depreciates," Summers said. "Every emerging market financial crisis has seen countries fall into this pattern, and this is even before considering the possibility of large-scale selling of U.S. financial instruments by foreign reserve holders or those influenced by foreign governments, which of course must be acknowledged as a possibility," he said.

Third, tariffs could invite retaliation from trading partners, weaken America's ability to exploit its cost advantages in global trade, raise production input costs, and limit the ability of U.S. companies to cultivate exports, he said. U.S. import tariffs "could have a lasting and cumulative impact on growth rates," Summers said.

Fourth, Trump's tariffs "have pushed uncertainty to epic levels," Summers said, noting that stock market volatility, as measured by the Chicago Board Options Exchange Volatility Index (VIX), has surged to levels not seen since the early days of the pandemic and the peak of the 2008 financial crisis. "We are witnessing an unprecedented, large-scale self-inflicted wound," Summers said.