Will tariffs lead to recession?

President Donald Trump's sharp tariff hikes last week have sent the stock market into a tailspin, raised alarm bells among Wall Street executives, and heightened economists' worries that the US could slip into recession.

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The tariffs, set to take effect Wednesday, include a 10 per cent blanket duty on nearly all countries and additional import taxes on 60 nations. The increases are so large and are taking effect so rapidly that they are likely to be disruptive to the economy, economists say, even if they are partially rolled back around negotiations in the coming weeks or months.

Economists at Goldman Sachs have raised their assessment of the odds the US will experience a recession — where the economy shrinks and unemployment rises — to 45 per cent, from 35 per cent last week.

And even the forecast assumes many of the duties are negotiated away or reduced. If not, “we expect to change our forecast to a recession,” Jan Hatzius, Goldman's chief economist, and his colleagues said in an analysis.

Other economists are raising similar alarms, with JPMorgan putting the odds of a recession at 60 per cent and projecting inflation will reach 4.4 per cent by the end of this year, up from 2.8 per cent currently.

Should the tariffs remain in place for an extended period, they will likely raise costs and uncertainty for businesses, which could reduce their willingness to hire, invest in new equipment or software, or expand into new markets. Americans could cut back on their spending in the face of higher prices. The economy could start to shrink, after expanding 2.8 per cent in 2024.

So far, most measures of the economy, such as job gains, remain solid. Employers added more jobs than expected in March, the government reported last week, and layoffs remain historically low.

Still, surveys show consumers and businesses are increasingly worried about the economic outlook. What everyone from Wall Street investors to economists at officials at the Federal Reserve will be watching closely is whether those concerns lead to a downturn.

Here are some questions and answers about recessions:

Are there any signs a recession is imminent?