How tariffs can cause a recession

                                                                                          How tariffs can cause a recession     

How tariffs can cause a recession

If you were president of the United States and wanted to engineer a recession by summer, at least one economist says a very effective way of doing that would be to announce sweeping "Liberation Day" tariffs in April.

Why it matters: That's the message of a new 40-page slide deck from Apollo chief economist Torsten Slok, entitled "The Voluntary Trade Reset Recession," the probability of which he now puts at 90%. Slok was correctly bullish in 2022, when many other analysts were forecasting a recession, giving extra weight to his bearishness now.

The big picture: The flow of container ships from China to the U.S. is likely to "come to a stop" in the next few weeks, by the middle of May, Slok says, thanks to the punitive tariffs President Trump placed on Chinese imports.

By the end of May, trucking demand will have come to a halt, he writes, with layoffs in both trucking and retail coming in late May or early June. A recession then follows. "Expect well-run generational retailers to file for bankruptcy," he writes. Where it stands: U.S. firms are revising down their expected profits, placing fewer new orders, and investing less money in new equipment.

Heavy truck sales in March were at the lowest level since the pandemic, and CEO confidence is now at the lowest level since the global financial crisis of 2009. Consumer confidence is also hitting new lows, along with international tourism. Americans are "very worried" about losing their jobs, Slok writes.

Americans now expect higher unemployment exceeding even pandemic levels, and a record-high number expect economic conditions to worsen over the coming year, Slok adds. The bottom line: "A trade war is a stagflation shock," according to Slok. So long as the trade war is being waged, stagflation seems highly likely.