Goldman Sachs Exchanges
Will tariffs lead to a recession?
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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Quick takeaways
- The unprecedented rise in U.S. tariff rates creates significant uncertainty, impacting investment planning and potentially leading to lower consumer confidence.
- While immediate tariff-induced economic disruptions may arise, a focus on domestic production could foster healthier long-term economic conditions.
Deep dives
Impact of Trump's Tariffs on Trade Policy
The Trump administration's tariff policies represent an unprecedented shift in U.S. trade dynamics, with tariff rates projected to rise significantly compared to historical norms. Experts highlight that current tariffs could reach an average of 20%, a stark contrast to the 3% average prior to these changes, marking the most substantial trade shock in U.S. history. This shift raises concerns regarding its implications for the economy, as trade has become a much larger component of economic activity since the Smoot-Hawley tariffs of 1930. The magnitude of this episode raises unique risks, as businesses face increasing uncertainty about future tariff structures and trade relations.
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