US recession risk jumps to 35% in 2025 as Trump’s tariffs reshape global trade, says Pimco

The probability of a US recession in 2025 has risen to 35%, according to Pimco, a global investment management firm.

This marks a significant jump from the 15% likelihood it estimated in December 2024.

The primary driver behind this increase is the impact of US President Donald Trump’s tariff policies, which are reshaping global trade and economic dynamics.

Trump’s latest round of tariffs, particularly those targeting steel and aluminium imports from Canada, have heightened concerns about a slowdown in economic activity.

While the administration argues that these measures will protect domestic industries, some analysts warn that higher import costs could weigh on businesses and consumers.

US growth slowdown

Alec Kersman, managing director and head of Asia-Pacific at Pimco, told CNBC while a full-blown recession is not the firm’s base-case scenario, the economic slowdown is undeniable.

Pimco now expects US growth to decelerate to a range of 1% to 1.5% in 2025, a sharp decline from earlier forecasts.

The US economy has been resilient despite inflationary pressures and aggressive rate hikes by the Federal Reserve, but the growing uncertainty around trade policies has introduced new risks.

Tariffs generally lead to higher costs for businesses that rely on imports, and those costs are often passed on to consumers.

This, in turn, can dampen demand and weigh on economic output.

Geopolitical impact

The role of geopolitics in economic policy has grown significantly in recent years.

For much of the past two decades, globalisation has been the dominant force in shaping investment decisions.

But with the resurgence of protectionist policies, companies are being forced to rethink supply chains and production strategies.

Trump’s tariff moves are part of a broader shift in US economic policy that prioritises domestic industries over international trade partnerships.

This approach is expected to have far-reaching consequences, not just for US businesses but also for global markets.

Countries that have long relied on trade with the US are now considering alternative economic alliances to mitigate the risks of protectionist policies.

Canada tariffs

One of the most recent developments in Trump’s trade agenda is his decision to double tariffs on Canadian steel and aluminium imports to 50%.

The move came in response to Ontario Premier Doug Ford imposing a 25% surcharge on electricity exports to the US.

The tension between the two neighbours escalated rapidly, prompting concerns that a prolonged trade dispute could impact supply chains.

However, Ford later agreed to suspend the surcharge after discussions with US Commerce Secretary Howard Lutnick, leading Trump to reconsider his tariff decision.

While this reversal signals some room for negotiation, it also highlights the volatility in US trade policies.

Businesses and investors now face increased uncertainty, as policy shifts can occur rapidly and without much warning.

This unpredictability makes long-term planning more challenging and raises the stakes for industries dependent on stable trade relations.

Despite the challenges posed by tariffs, the US economy remains on a path of moderate expansion.

The extent to which these trade policies will impact growth depends on how businesses and consumers adapt.

Some companies may look for alternative supply chains, while others could benefit from a more protectionist environment.

Pimco’s revised recession probability underscores the delicate balance facing the economy.