Goldman Sachs has revised its economic outlook for the United States, increasing the probability of a recession in the next 12 months to 35%, up from the previous estimate of 20%. This adjustment comes in anticipation of President Donald Trump’s implementation of “reciprocal tariffs” set to commence on April 2, a date the administration has dubbed “Liberation Day.”
The upcoming tariffs are expected to raise the average U.S. tariff rate to approximately 15%, levels not seen since before World War II. Goldman Sachs economists warn that these measures could lead to increased consumer prices, with core Personal Consumption Expenditures (PCE) inflation projected to reach 3.5% by the end of 2025. In response to these inflationary pressures and the anticipated economic slowdown, the Federal Reserve is expected to implement three quarter-point interest rate cuts in July, September, and November to stimulate growth.
Global financial markets have reacted negatively to the escalating trade tensions. The FTSE 100 experienced a 0.9% decline, marking its most significant one-day loss in three weeks and the sharpest monthly drop since October 2023. In the United States, the S&P 500 index has been downgraded by Goldman Sachs, with forecasts now predicting a -5% return over the next three months and a 6% return over the next year, down from previous estimates.
The automotive industry is poised to be significantly impacted by the new tariffs. President Trump has announced a 25% tariff on all foreign-made vehicles starting April 3, asserting that this move will benefit American-made cars despite the expected increase in prices for imported automobiles. Financial experts estimate that the average cost of an imported vehicle could rise by $5,000 to $10,000. Additionally, tariffs will also apply to foreign auto parts, even if assembled in the U.S., with some exceptions under the United States-Mexico-Canada Agreement (USMCA).
The administration’s stance on reciprocal tariffs aims to address what it perceives as unfair trade practices by imposing a singular tariff rate per country, reflecting the cumulative tariffs and non-tariff measures that each country imposes on the U.S. However, this approach has raised concerns among economists and trade experts about potential retaliation from affected countries and the broader implications for global trade dynamics.
Sources:
- https://www.reuters.com/markets/us/goldman-sachs-expects-us-fed-deliver-three-rate-cuts-2025-2025-03-31/
- https://www.wsj.com/economy/central-banking/goldman-sachs-lifts-u-s-recession-probability-to-35-ce285ebc
- https://www.theguardian.com/business/live/2025/mar/31/world-markets-us-dollar-worst-month-2022-trump-trade-war-tariffs-investors-business-live-news
- https://www.businessinsider.com/stock-market-outlook-sp500-recession-tariffs-goldman-sachs-stock-correction-2025-3
- https://nypost.com/2025/03/30/us-news/trump-says-new-auto-tariffs-are-permanent-couldnt-care-less-about-price-hikes-on-foreign-made-cars/
- https://www.reuters.com/world/us/us-reciprocal-tariffs-will-impose-one-rate-per-country-white-house-adviser-says-2025-03-07/
- https://www.ft.com/content/dbf345eb-5404-4f06-b56f-aaa4d43edd3d
- https://www.cbsnews.com/news/trump-tariffs-april-2-liberation-day/
- https://www.morningstar.com/news/dow-jones/202503301307/goldman-sachs-lifts-us-recession-probability-to-35
