Trump's Second Reign Is 75% Likely To Trigger Recession, And Here's The Reason
1min read Peter Berezin, Chief Global Strategist at market research firm BCA Research, has stated that the likelihood of a U.S. economic recession has significantly increased since last week's U.S. election, which concluded with a Trump victory.
In a recently released report, Berezin raised the probability of a U.S. economic recession from 65% to 75%, citing the risk of new trade wars under Trump's leadership.
"The prospect of a new trade war more than offsets the other pro-business parts of Trump's agenda," he wrote: "With the labor market already weakening going into the election, the odds of a recession have risen."
During his previous campaign, Trump stated that in his second term, he would impose a 10% tariff on imports from all countries and a 60% tariff on imports from China, and he would not mind if China increased tariffs on U.S. products in retaliation.
Berezin said that these tariffs could suppress business investment and reduce consumers' real disposable income, which would deal a double blow to the U.S. economy.
He cited a study from the Budget Lab at Yale University, which estimated that Trump's proposed tariffs would reduce the real disposable income of a typical U.S. household by $1,900 to $7,600.
Some in the market speculate that Trump's tariff proposals are merely empty threats intended to be used as bargaining chips in negotiations with other countries, but Berezin does not seem to think so.
"Whether Trump carries out these threats is open for debate," he wrote: "The consensus view among market participants is that, for the most part, he will not. Once again, I suspect the consensus is too optimistic."
Berezin said that although Trump's proposed tax cuts, if passed, might increase earnings per share of the S&P 500 by 4%, this is lower than the index's 5% rise last week. This indicates that the proposed tax cuts have already been priced into the market.
He also expressed concern about the prospects for interest rate cuts following Trump's election, stating that interest rates are at a restrictive level, which could exert downward pressure on economic growth.
Many economists, Wall Street analysts, and industry leaders have repeatedly expressed concern about the inflationary impact of his hardline trade tactics, especially as inflation has just begun to cool from pandemic-era peaks.
"The weak state of the housing market is screaming at investors that monetary policy is restrictive," Berezin said, highlighting the significant slowdown in housing sales activity.
In light of the above, Berezin is pessimistic about the U.S. stock market.
"Taken together, these considerations lead us to recommend a modest underweight on stocks," he said, adding that he plans to shift his investment advice to "maximum underweight" once there is "clearer evidence of a recession emerges."