Yellen Warns Trump Tariffs Could Drive US 40% Closer to Recession

Janet Yellen, the former US Treasury Secretary, has voiced serious concerns about the potential negative effects of President Donald Trump's tariffs on the US economy. Yellen's warnings focus on the adverse impact on key mineral supplies and the broader economic landscape. The tariffs, which primarily target goods imported from China, are expected to hinder companies that rely on these critical minerals for their operations. Approximately 40% of the goods imported into the US are inputs for domestic production, making the tariffs particularly problematic for various sectors, including the clean energy industry.

Yellen emphasized that the tariff strategy could have a "huge detrimental" effect, particularly on companies that depend heavily on mineral supplies from China. She cautioned that such trade measures risk driving the US closer to a recession. Yellen noted that the sweeping taxation on trading partners could severely impact not only the economy but also consumers and businesses that rely on imported raw materials for their competitive edge. While she refrained from directly forecasting a recession, Yellen acknowledged that the likelihood of such an outcome has significantly escalated.

Yellen's assessment aligns with a consensus view among economists that the tariffs will likely have a negative impact on the US economy, increasing the odds of a recession. The market initially reacted to the April 2 announcement by pricing in the potential for a recession, but this sentiment began to shift after Trump's pause on April 9. The market is now anticipating positive resolutions from ongoing trade talks and negotiations, which could trigger an economic bounce-back and increased economic activity. However, if these talks disappoint, the market may revert to pricing in a recession.

The tariffs are expected to have a particularly detrimental effect on the US clean energy sector, which is heavily dependent on China for critical minerals essential for clean energy technologies. This dependency underscores the vulnerability of the sector to disruptions in the supply chain caused by the tariffs. The negative impact of the tariffs is not limited to the US economy; it is also expected to affect the global economy, with investment decisions being postponed and companies expressing concerns about the economic outlook.

Yellen's warnings serve as a reminder of the complex interplay between trade policies and economic stability. The tariffs, while intended to protect domestic industries, could inadvertently hobble companies that rely on imported goods and critical minerals. The situation underscores the importance of trade talks and negotiations in mitigating the adverse effects of the tariffs and ensuring a stable economic environment. As the US economy navigates these challenges, the outcomes of trade talks will be crucial in determining the trajectory of economic growth and stability.