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Wall Street shrugs off Trump’s trade war as recession fears fade

Remarkably, most analysts and market participants have developed a kind of immunity to US President Donald Trump's aggressive tariff policies. The global trade standoff no longer strikes fear, and on Wall Street, concerns over a looming recession have faded. Such is the mood of growing optimism.

Previously, many economists feared that Trump’s tough measures would trigger a surge in inflation and significantly slow down economic growth. The specter of a recession loomed large for experts and traders alike. However, the anticipated “apocalypse” tied to tariffs did not materialize. The reasons include the surprising resilience of the global economy, a more moderate long-term inflationary impact from tariffs than expected, and an overall easing of financial conditions.

In this environment, JPMorgan Chase analysts have lowered the probability of a recession from 60% to 40%. While still above average, the outlook is far less pessimistic.

“Tariffs are a tax hike on US purchases of foreign goods, but this tax drag is not likely to be large enough to derail the US expansion,” JPMorgan chief economist Bruce Kasman said in a note. He also noted that instead of provoking widespread global retaliation, the tariffs have so far served as a relatively moderate measure aimed at expanding market access for American goods.

Still, the risks of a downturn remain high. Following the announcement of the 15% tariff deal with the EU, Wall Street acknowledged that recession fears had eased, though the safeguard tariffs could still dampen growth.

“We still believe the most likely outcome is slow growth and firm inflation: Not a recession, but a backdrop where the adverse effects of trade and immigration controls on growth outweigh the boost from deregulation and fiscal largesse,” Michael Zezas, currency strategist at Morgan Stanley, said.

Current uncertainty is being compounded by the unclear outcome of ongoing trade negotiations. A fresh wave of tariff clashes “could easily tip the balance towards a mild recession,” Zezas warned. “In sum, we see outcomes for the US economy skewing toward a slowdown, but with more clarity on the fiscal situation and deficits now front-loaded, the risk of a substantial recession is easing,” he concluded.

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