By coinnews 
00:00 Speaker A
Growth fears gripping the markets as trade war escalates. Stocks continuing the whipsaw action that we’ve seen this week after China announces 125% retaliatory tariffs on US goods. Joining us now we’ve got Robert Sockin, Citi Senior Global economist. Robert, good to have you here with us. What’s the likelihood of a recession in your view?
00:18 Robert Sockin
Thanks so much, uh, for having me during these, uh, wild swinging times. Uh, I’m putting the probability of a US recession at about 40%. Uh, I think despite the pause that we got on the reciprocal tariffs, we still have much higher tariffs on those countries than we had, um, a few months ago. Escalating trade war with China is very worrying, um, and could lead to severe disruptions. Uh, and so I think we’re in a similar spot with recession risk than we were, uh, earlier in the week. Um, and it’s really due to these tariffs and policy uncertainty, which are going to shave a significant amount of growth off the US economy, uh, this year.
01:05 Speaker A
And talk to me about how much that growth being shaved off of the economy puts us at risk of a recession, especially if this tit for tat continues with China.
01:18 Robert Sockin
Yeah, absolutely. And, and one of the key points is whether you are calling for a recession now, in part depends on how strong you thought the economy was at the start of this year before the stresses began. Um, consensus and myself were around, uh, 2.3% growth for the year, give or take. Um, and by our math, the tariffs that have been put in place are going to shave between one and two percentage points off of US growth. I would be closer to the upper end of that range, which would mean relative to where we were before, we’re looking at growth probably at 1% or or below. Um, and it’s easy to get to bigger numbers from that. If you take on secondary effects like assuming that businesses and consumers are going to pull back because of all of the uncertainty, uh, that has been in play in, in recent weeks. So, uh, it’s a very concerning situation and especially with the trade war between the US and China, I think you run the risk of unknown unknowns coming into play. How rapid is trade going to drop off between the two economies? What is that going to do to supply chains? Are we going to see pressures and strains like we saw during the pandemic? So there’s all sorts of unknown variables, um, that are in play. And I think in particular, the US China situation, uh, has me worry that we’re going to start to see things that we saw, um, uh, during the pandemic and supply chains.
03:04 Speaker A
From, from CEOs that we’re speaking with, Robert, it sounds like they’re already working through the considerations of just how to have their businesses operate through this novel level of uncertainty. And so even within the economic backdrop, they’re thinking about, all right, their own cost and their expense base right now, and whether they need to scale that back. How do you think that might flow through and potentially have an adverse impact on the employment situation? I know last week was all the employment rates. That was employment, chella, last week, but now we need even more focus renewed on this once again.
03:44 Robert Sockin
Yeah, absolutely. And, you know, this is one of the, the challenges of measuring the economic impact of the tariffs. There’s all sorts of margins of adjustment that can occur. Um, what exporters absorb into their margins, importers absorb into theirs, what gets passed onto consumers. I think companies are going to be looking to, um, uh, cut costs in some way, especially because, uh, they’re not going to be able to pass on as much to the consumers as maybe they would have been, uh, a few years ago. And, uh, one way that could happen, um, is through, uh, layoffs. I think that’s one of the channels that we’re monitoring closely is if these tariffs stay in place and costs do go up a lot, the companies may be looking to economize, um, on staffing. So far, you know, as you mentioned, the labor market was very solid at the beginning of this year. There was even signs it was picking up in some respects. If you look at hiring, um, layoffs right now are still, are still quite low by historical standards, but this is one of the areas we have to monitor closely because it is an area where companies might have to look to economize.
05:10 Speaker A
Right. Robert, final minute. What do you make of the fast take back from big banks about their recession calls this week just because of this 90 day pause? Does that 90 day pause really take a recession risk off the table?
05:28 Robert Sockin
I think there are a couple things that can really push you into a recession call. And I think where the tariffs were before on all these different countries, um, added up, especially if you assume that you get retaliation from those countries, you could get to a recession call pretty quickly because the retaliation magnifies the negative effects on the US and the rest of the world. Uh, but where I’m sitting, even though we got that pause, I think a lot of those channels we were talking about, the uncertainty, the much worsening situation on China are all still in play. And tariffs are much higher than they were on the other countries than they were, uh, earlier this year. So to me, maybe it marginally moves you back away from the recession camp, but I haven’t changed my probability too much. I was 40% earlier in the week. I’m still there now.