US Economy Flirting with Recession Amidst Trade Tariff Uncertainty

US-UK Trade Deal Limited in Scope

• 🇬🇧 The recent US-UK trade deal is not seen as a strong template for future agreements, as the US imports very little from the UK and runs a trade surplus.
• 💡 A positive aspect of the deal is the focus on lowering non-tariff barriers, which could improve global trade access.
• ⚠️ A baseline 10% tariff remains on British cars and steel, indicating tariffs will likely stay elevated.

Tariffs on China and Trade Freeze

• 🇨🇳 The US and China face an effective embargo on trade due to cumulative tariffs of around 145% on US imports from China and 125% on Chinese exports to the US.
• 📉 Negotiations aim to lower these rates to a more palatable 54-60%, but even reduced tariffs of 40-50% on China and 5% on others will significantly disrupt trade.
• 💥 The current high tariff rates are seen as a major disruption to trade flows between the two economic giants.

Economic Slowdown and Recession Risk

• 📈 The US average tariff rate has risen from 2.5% to 25%, the highest since 1909, contributing to an expected slowdown in US economic growth.
• 📉 Growth is projected to decrease from 2.5% to 0.2%-2% by the fourth quarter of the year, indicating the US is flirting with recession.
• 📊 This slowdown is anticipated even with a rollback of some tariff rates.

Federal Reserve's Dilemma

• 🏦 The Federal Reserve faces a difficult choice between maintaining restrictive monetary policy due to potential inflation and easing policy to counteract the economic drag from tariffs.
• ⏳ The Fed is expected to be data-reactive, waiting for clear evidence of an economic slowdown before cutting rates.
• 📅 Potential rate cuts are anticipated to begin in July, with further cuts in September and December, possibly accelerating if the economy continues to slow.