A revised economic outlook in the wake of tariff chaos

One hundred days that shook the world. That sums up the start of Donald Trump’s second term. In 100 days, his tariff policy has caused an upheaval of global trade and an unprecedented spike in uncertainty impacting the confidence of consumers, businesses and markets. Turning an economy noted for its exceptionalism to one at risk of stagflation is like transforming gold into lead. On the edge of a precipice, the instinct is to step back. The tariff exemptions granted by the US to China and the rest of the world are welcome, even if they are only temporary at this stage. Let us assume they will be extended. This reduces the intensity of the shock but does not restore full visibility overnight. At present, the real economy is showing few traces of this erratic policy, except in sentiment indicators that may have overreacted. However, activity and price conditions have been modified. In three months, US tariffs have been raised fivefold (instead of tenfold if there had been no de-escalation). Trade cannot be halted and then restarted at will without causing frictions and adjustment costs. The risk of a US/global recession surged in April before receding in May, but it is still far higher than normal.