JPMorgan has adjusted its economic outlook, lowering the likelihood of a U.S. recession in 2025 from 60% to below 50%. Now, President Donald Trump has unilaterally chosen to let some of these tariffs go. If this change is any indication, the U.S. economy can look forward to a productive few years ahead — not a recession.
The old tariff structure introduced large perils. It risked soaring inflationary pressures, upending global supply and trade patterns, and increasing the likelihood of a U.S. recession. The recent U.S.-China tariff rollback underscores a larger trend that’s marked a sea-change from Trump’s original levies. This one shift has significantly calmed Wall Street’s fears over inflation and potential economic stagnation.
We commend the Biden administration’s decision to roll back certain tariffs that were hitting the automotive sector particularly hard. Further, they’ve reduced tariffs on certain products brought in from Mexico and Canada. A uniform 10% tax already exists on most imports from most countries. Perhaps the most extreme changes have taken place in the U.S.-China trade deal. Notably, this agreement completely eliminates U.S. tariffs on Chinese goods, lowering them from a staggering 145% to 0%. Simultaneously, it reduces Chinese tariffs on U.S. goods from 125% to a mere 10%.
All told, the reduction of these punitive tariffs should restore some modest inflationary relief to American households. Thanks to these changes, the average cost of tariffs per household can be cut by almost 50%. The Yale Budget Lab cautions that the overall cost burden of tariffs will still be around $2,800 by 2025.
Inflation rates have cooled since the imposition of tariffs, hitting their lowest point since 2021. Unsurprisingly, economists blame the decrease in prices specifically on the lack of tariffs. In turn, they expect a calmer economic picture moving forward.
Underneath these rosy predictions, questions linger about the direction of U.S. economic policy. Jim Reid raises a crucial question regarding the future trajectory of such policies:
“These massive tariff reductions at this time likely take a recession off the table for now.” – Dan Ives
Jerome Powell has previously warned that sustaining large increases in tariffs could lead to inflationary pressures and slow economic growth.
“Will the unpredictable nature of U.S. policy continue or are we now on a more conventional path?” – Jim Reid
Analysts and economists are intently watching these recent, unprecedented turns of events. What’s obvious wherever you look is how the recent tariff rollback is upending the economic landscape. The declining risks of recession and increasing prospects for growth might indicate that the U.S. economy has entered a new stage.
“Not sure I have the answers.” – Jim Reid
Jerome Powell has previously warned that sustaining large increases in tariffs could lead to inflationary pressures and slow economic growth:
“If the large increase in tariffs that have been announced are sustained, they’re likely to generate a rise in inflation and a slowdown of economic growth.” – Jerome Powell
As analysts and economists evaluate these recent developments, it remains clear that the easing of tariffs is reshaping the economic landscape. The reduction in recession risks and potential for growth could signal a new phase for the U.S. economy.
