Trump's tariff easing doubles the probability of a U.S. economic recession.

Source: Jin10

U.S. President Trump’s willingness to ease the trade war not only triggered a surge in U.S. stocks but also reduced the likelihood of an economic recession—at least for now.

China and the United States reached an important consensus on a trade agreement last week. Trump's earlier confrontational stance in April had raised market concerns about a global economic recession. Currently, this truce has relieved Wall Street as a whole and has become a catalyst for the recovery of the stock market.

Bill Adams, Chief Economist at Comerica Bank, said: "I believe the risk of a recession looks much lower than it did a month ago."

However, the road to the future of the economy is by no means smooth.

On one hand, the ongoing trade war has not ended. After the 90-day pause, Trump may change his mind. Even though there has been a recent reduction, the current level of tariffs in the United States will still remain at the highest level in decades.

Douglas Porter, Chief Economist at BMO Capital Markets, stated: "While the news on trade is undoubtedly not as bad, it is far from reassuring."

More importantly, the various uncertainties arising from trade conflicts have made households and businesses hesitant in consumption, hiring, and investment. In the past few months, confidence has plummeted, and American consumers' anxiety is unlikely to dissipate anytime soon.

The result is: Economists expect the US economy to slow significantly this year, even as the threat of recession has receded. The situation in the first quarter is indicative, with a decline in growth rate marking the first quarterly drop since 2022.

In a report to clients, RSM economist Tuan Nguyen wrote: "Although a recession is no longer our baseline scenario for the next 12 months due to recent tariff reductions, the likelihood of the U.S. economy experiencing several quarters of sluggish growth has increased."

A new survey compiled by the Philadelphia Fed targeting top economists on Wall Street shows that excluding the COVID-19 pandemic period, the U.S. economic growth rate will slow to its lowest level in 16 years.

Predictors anticipate that the United States' Gross Domestic Product (GDP) will grow by 1.4% in 2025. This is a significant decrease from the 2.4% growth rate that was expected before the outbreak of the trade war.

In contrast, the U.S. economy is expected to grow at a strong rate of 2.8% in 2024, down from 2.9% in 2023, well above what is considered the highest sustainable speed for the economy.

Economists predict that slower economic growth may in turn lead to a rise in the unemployment rate, while higher tariff levels may stimulate a slight increase in inflation.

This vulnerability means that even after the recent tariff reductions, the likelihood of the United States falling into an economic recession remains relatively high.

Economists believe that the probability of an economic downturn in the United States in the next 12 months is 37%, while in the last Philadelphia Fed survey conducted in early 2025, this probability was only 15.4%.

Some top business leaders and Wall Street investors are also reluctant to say that the danger has passed.

JPMorgan CEO and influential banker Jamie Dimon said last Thursday that he would not "rule out" the risk of a recession at this time.

Stephen Cohen, owner of the New York Mets in Major League Baseball and a renowned investment manager, has set the probability of a recession at 45%. He stated at an investor meeting in New York: "I believe we will face a significant slowdown in growth."

However, the general public does not seem to be as worried.

The number of searches for the term "recession" on Google surged to a three-year high in March and April, but it sharply declined after the Trump White House began rolling back tariffs. The search volume has returned to the low levels seen a few months ago before the trade war began.