Goldman Sachs Exchanges Will tariffs lead to a recession?
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Apr 23, 2025 
Paul Krugman, a Nobel Laureate in Economic Sciences, joins Goldman Sachs’ chief economist Jan Hatzius and American Compass founder Oren Cass to explore the impact of the Trump administration's tariffs on the U.S. economy. They discuss how unpredictability in trade policies could dampen business investment and consumer confidence, potentially leading to a recession. The conversation also highlights the complex relationship between short-term trade costs and long-term economic health, urging a reevaluation of corporate profitability's connection to societal outcomes.
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Historic Scale of Trump Tariffs
- Trump's tariff increases are historically unprecedented, surpassing even the Smoot-Hawley tariffs from 1930.
- The tariff jump from about 3% to over 20% is an order of magnitude bigger shock due to today's larger trade share of the U.S. economy.
Uncertainty Drives Recession Risk
- The likely recession risk stems not just from tariffs but from extreme uncertainty about future tariff policies.
- This uncertainty causes businesses and consumers to delay investment and spending, depress demand, and increase recession risks.
Policy Reversals May Increase Uncertainty
- Policy reversals or partial rollbacks might worsen uncertainty if the reversals themselves could be reversed soon after.
- This persistent unpredictability undermines confidence and hampers investment planning despite apparent policy softening.