Will tariffs lead to a recession?

This episode explores the potential economic consequences of the Trump administration's tariff policies, specifically the risk of a US recession. Against the backdrop of historically unprecedented tariff increases, Nobel laureate Paul Krugman emphasizes the uncertainty surrounding these policies as the primary driver of potential recession, arguing that unpredictable changes hinder business investment and negatively impact consumer confidence. More significantly, Goldman Sachs chief economist Jan Hatzius agrees on the significant negative impact on growth, estimating a 2 percentage point hit to GDP, and assigns a 45% probability of recession, contingent on the full implementation of planned tariffs. In contrast, Oren Cass, founder of American Compass, argues that while short-term costs are inevitable, these policies, if communicated clearly, should ultimately stimulate domestic investment and improve long-term economic outcomes for the US. For instance, Cass suggests that the perceived uncertainty is overblown and that the optimal business strategy remains focused on increased domestic production regardless of future policy changes. Ultimately, the discussion highlights the divergence in perspectives on the severity and likelihood of a recession, with the consensus leaning towards a moderate recession driven primarily by uncertainty rather than the sheer magnitude of the tariff increases.