The Tariff Tipping Point: Why a 90% Recession Risk Could Usher in Economic Chaos

Torsten Sløk, the chief economist at Apollo Global Management, has issued a dire warning: the U.S. faces a 90% probability of a recession in 2025—a scenario he dubs the “Voluntary Trade Reset Recession” (VTRR). This stark prediction hinges on the escalating impact of current U.S. tariff policies, which Sløk argues are set to cripple small businesses and trigger a cascading economic collapse. With tariff levels at historic highs, the stakes are nothing short of existential for millions of jobs and trillions in economic activity.

The GDP Impact: A Four-Point Freefall

Central to Sløk’s analysis is the 4 percentage point GDP contraction he forecasts for 2025 due to tariffs. This estimate extrapolates from the 2018 trade war with China, when tariffs rose from 2% to 3%, shaving 0.25% to 0.7% off GDP. Scaling this linear relationship to the current jump—from 3% to 18%—yields a staggering potential decline. Yet Sløk warns this figure doesn’t account for “non-linear effects” like heightened uncertainty, which could further suppress consumer and business spending.

Small Businesses: The Weak Link in the Economic Chain

Small businesses, which account for ~80% of U.S. employment (110 million jobs) and $4.2 trillion in private fixed investment, are the most vulnerable. Unlike large corporations, they lack the working capital to absorb tariff costs, which must be paid upfront upon importation. Sløk projects this will lead to idling ships offshore, canceled orders, and mass bankruptcies. A March 2025 Vistage Worldwide survey found two-thirds of small businesses already anticipate harm from tariffs, with many bracing for price hikes and operational disruptions.

The structural risks are profound. Small businesses contributed 44% of GDP as recently as 2014, and their collapse would directly drag down growth. Sløk emphasizes that their fragility—coupled with their outsized role in employment and capital expenditure—makes them the economy’s Achilles’ heel.

Policy Solutions or a Lost Cause?

To avert disaster, Sløk urges policymakers to phase in tariffs gradually (18–24 months) and negotiate trade agreements. For North American partners like Mexico and Canada, he suggests a 180-day “pause” with a 10% tariff to address non-tariff barriers. China, meanwhile, should see tariffs eased on non-strategic sectors while strategic industries like autos and solar retain protections. However, time is of the essence—the longer tariffs remain at current levels, the deeper the recession becomes.

Market Signals: Panic or Prudence?

Financial markets are already pricing in the anxiety. Gold prices have surged over 20% to a record $3,400/ounce—a classic safe-haven response—while Brent crude has plummeted to 2021 lows, signaling global growth concerns. The S&P 500 has declined sharply, with tech and energy sectors leading the downturn as investors brace for a slowdown.

The Broader Context: A Disputed Outlook

While Sløk’s 90% recession probability is extreme, it aligns with figures like Ray Dalio (Bridgewater), who warns of an approaching “decision-making point.” Other institutions, including Goldman Sachs and JPMorgan, estimate lower probabilities (40–60%), arguing that the Fed’s accommodative policies and corporate resilience will cushion the blow. Sløk counters that the Fed’s reluctance to cut rates until tariff clarity emerges is a critical flaw.

Conclusion: A Recession Waiting to Happen

Sløk’s 90% recession probability is no abstract threat. The math is stark: $4 trillion in GDP at risk, 110 million jobs on shaky ground, and markets in freefall. While some economists downplay the danger, the data is unequivocal—the U.S. economy is walking a tightrope over a tariff-fueled abyss. Investors would be wise to heed this warning: the path to safety lies in swift policy action, not wishful thinking.

The clock is ticking. If tariffs remain at current levels, history may judge 2025 as the year when a trade war turned into an economic war—one that no one wins.