Why US is facing recession risks despite Trump's pause on tariffs

On Wednesday, US President Donald Trump announced a 90-day pause on tariffs for dozens of countries.

The development came after days of Trump insisting that tariffs would remain.

In the meantime, stock markets from around the world – from US to Europe and Asia – witnessed major crashes.

Experts think trillions of dollars of wealth was wiped out.

Then, without warning, Trump changed course.

But what happened? Does a risk of a recession remain? What do experts say?

Let’s take a closer look:

What happened?

Trump shocked many when he announced a 90-day pause on ‘reciprocal tariffs ’ for most countries.

The tariffs had gone into effect less than 24 hours ago.

However, the ‘base tariff ’ of 10 per cent Trump imposed on dozens of countries on April 2 remains.

Nor does it include China – on whom Trump increased tariffs to 124 per cent – which is the world’s second-largest economy and the US’ biggest trading partner.

Beijing earlier increased its tariffs on the US to 84 per cent.

“China wants to make a deal,” Trump said. “They just don’t know how quite to go about it.”

China said it will “follow through to the end” if the US insists on its own way, Commerce Ministry spokesperson He Yongqian told a regular press briefing.

China’s door was open to dialogue, but this must be based on mutual respect, the ministry said.

“The US cause doesn’t win the support of the people and will end in failure,” China’s Foreign Ministry spokesperson Lin Jian said.

Beijing may again respond in kind after imposing 84 per cent tariffs on US imports on Wednesday to match Trump’s earlier tariff salvo.

“We don’t back down,” Mao Ning, another Foreign Ministry spokesperson, posted earlier on X on Thursday, sharing a video of a defiant speech by late Chinese leader Mao Zedong from 1953 during its war with the United States on the Korean peninsula.

Why did Trump do so?

Trump said he made the move based on the reactions in the stock and bond markets.

It also came after a number of Trump-backing billionaires including Bill Ackman and JP Morgan CEO Jamie Dimon had also expressed concern on social media over the Trump tariffs .

Ackman said the tariffs would result in a a “self-induced, economic nuclear winter,” while Dimon said the recession was now “a likely outcome.”

The developments seemed to unnerve Trump.

“I thought that people were jumping a little bit out of line, they were getting yippy, you know,” Trump said.

“I was watching the bond market,” Trump was quoted as saying by CNN. “The bond market is very tricky. I was watching it. But if you look at it now, it’s beautiful.”

“The bond market spooked the president,” Ed Yardeni, president of Yardeni Research, told CNN’s Matt Egan. “Bond vigilantes were screaming that they weren’t happy with what was going on and there was a potential for a recession.”

The White House said in a statement, “It is the responsibility of the President of the United States to reassure the markets and Americans about their economic security in the face of nonstop media fearmongering.”

Does risk of a recession remain?

Experts think so.

According to Newsweek, JPMorgan Chase has kept its forecast of a recession at 60 per cent even after Trump’s pause.

The firm, calling Trump’s tariffs “draconian,” said the news “is a positive development, all else being equal.”

“However, not all else is equal,” it continued.

It added that “more shocking is the increase in China tariffs to an astounding 125 per cent.”

JP Morgan Chase noted that Trump increasing the tariffs on China meant the average US tariff went up to 25 per cent from 22 per cent last week.

“A simple calculation of 10 per cent on all countries except China at 125 per cent gives an average US tariff rate of roughly 25 per cent—a touch higher than the rate at the end of last week,” the report said.

It said that the recession was likely coming.

“Combined with the ongoing policy chaos on trade and domestic fiscal matters, along with the still-large losses in equity markets and hit to confidence, it remains difficult to see the US avoiding recession,” economists at JPMorgan wrote. “At the same time, China is likely to be hit very hard—likely prompting a large policy response.”

Meanwhile, consulting firm RSM placed the odds of a recession at 55 per cent.

“My sense here is that the (US) economy is still likely to fall into recession, given the level of simultaneous shocks that it’s absorbed,” Joe Brusuelas, the chief economist of consulting firm RSM, told CNN. “All this does is postpone temporarily what will likely be a series of punitive import taxes put on US trade allies.”

They say businesses simply can’t afford to pay the tariffs.

“Based on anecdotal discussions I’ve had with clients… many of them are going to choose just to leave the products at the docks — they don’t have the cash reserves to pay the tax,” Brusuelas said.

They think the US-China trade war will set both countries down a difficult path.

”If this persists, it will still cause significant challenges for both the USeconomy and the Chinese economy,” Wendong Zhang, an assistant professor at Cornell University and a faculty affiliate at Cornell’s Center for China Economic Research, told Politico.

But not everyone agrees.

Goldman Sachs, after news of the pause, reversed its recession call.

However, it says a 45 per cent chance of a recession remains.

“Earlier today, before President Trump’s announcement, we had shifted to a recession baseline in response to the additional country-specific tariffs that went into effect this morning,” the Goldman Sachs team was quoted as saying by Bloomberg. “We are now reverting to our previous non-recession baseline forecast.”

“I definitely think we will not have a recession,” Torsten Slok, chief economist at Apollo Global Management, told Politico. “That risk has been removed, and that’s of course why markets are rallying so much.”

With inputs from agencies