Trump's 10% Tariff Boosts Recession Odds to 56%

President Donald Trump's announcement of a blanket tariff policy has significantly increased the odds of a US recession by the end of 2025, according to prediction markets. The policy, revealed on April 2, imposes a 10% tariff on all US trading partners. This move has sparked immediate reactions in prediction markets, with platforms like Polymarket and Kalshi showing a 50% to 56% chance of recession by year-end, up from previous estimates of 40% and 43% respectively. Crypto-native platform Myriad Markets, launched after the announcement, also reflects this growing concern with a 53.6% chance of recession.

Financial markets responded negatively to the tariff news. The tech-heavy Nasdaq closed down nearly 6% while the S&P 500 fell about 5% on Thursday. Bitcoin and major altcoins also experienced significant declines, losing over $200 billion in market value. Trump described the tariffs as a policy that would “give us growth like we’ve never seen before,” asserting that the measures would rectify unfair practices by US trading partners and boost economic growth. However, many economists disagree with this assessment, warning that the policy could make goods more costly while slowing global economic growth. Ashish Shah from Goldman Sachs Asset Management described it as “a growth shock” that will “be a hit to US consumers.”

Economists predict that these tariffs will boost inflation by around 1 percentage point by year-end, pushing inflation close to 4% from its current level. Gregory Daco, chief economist at EY, estimates that the price increases could add $1,000 in annual costs for low-income households. Consumer goods manufactured in countries like China and Vietnam face particularly high tariff rates of 34% and 46% respectively, including popular products like Apple iPhones and clothing. Recent economic indicators already show concerning trends, with the March Purchasing Managers’ Index revealing prices increasing at their fastest rate since mid-2022 and factory activity contracting. The Conference Board’s consumer confidence index dropped to its lowest level in four years.

Mark Zandi of Moody’s Analytics warns that if US tariffs trigger retaliatory measures from other nations, “serious recessions” could emerge both in the US and globally. In such a scenario, US GDP might drop by 2% and unemployment could rise to 7.5% from its current 4.1%. Oxford Economics noted the announced tariffs will raise the effective US tariff rate to nearly 30%, matching levels not seen since the 1930s. Their economic model forecasts US GDP growth at just 1.4% with core inflation rising to 3.9% this year. Economists from Deutsche Bank estimate these actions could reduce growth by 1-1.5 percentage points this year while adding a similar amount to core inflation. They warn, “Recession risks will likely rise materially if these tariffs are sustained.”

Morningstar’s chief US economist Preston Caldwell offered perhaps the starkest assessment, calling the tariffs “a self-inflicted economic catastrophe for the US” if maintained. The full impact remains uncertain. Much depends on whether the Trump administration maintains all tariffs or offers exemptions for certain products or nations. For now, prediction markets and economists alike are signaling caution about economic prospects in the coming months.