MICHEL MARTIN, HOST:
For weeks now, President Trump has been touting his plan to impose a broad package of reciprocal tariffs on what he calls Liberation Day. That's tomorrow. Details of the plan are still unclear, but one thing is investors are worried. Mark Zandi joins me now to talk more about this. He's chief economist at Moody's Analytics. Mark Zandi, welcome back to MORNING EDITION.
MARK ZANDI: Good morning, Michel.
MARTIN: So major trading partners like China, European countries and Canada are retaliating. What are the risks of a global trade war at this point, or are we already there?
ZANDI: We're there. This is a trade war in my mind. We're raising tariffs on our trading partners. They're responding with tariffs on our products. We're lobbing nasty rhetoric at them. They're doing the same to us. That's a trade war. The economic damage so far has been modest. But with each passing day that the war continues, the damage is starting to mount.
MARTIN: So this week, investment bank Goldman Sachs nearly doubled its odds for a recession in the U.S. up to 35%. That's up from 20%. What's your outlook on the impact of these planned tariffs and whether the U.S. could be entering recession territory?
ZANDI: Yeah, 35% sounds about right. I'm a bit more pessimistic. I think, you know, that's uncomfortably high. Just to give you context, in a kind of well-functioning economy, the recession probability should be closer to 15%. So I wouldn't take any solace in the fact that we're less than even. And I will say that with each passing day that the trade war continues, those odds of recession will continue to rise. The uncertainty it's creating is doing damage day by day. So we can still turn this around. Therefore, the odds are less than even. You know, it's because of the policy, and you can change the policy. President Trump did that in his first term, in the first trade war. So he can do it again. But I fear that, you know, we're going down a pretty dark path here. And if we don't get off pretty soon, then recession will - odds will continue to rise, and we will be in recession later this year.
MARTIN: Later this year. OK. So that's something to think about. So where would we - likely to see that first? Would it be in hiring? Would it be in spending - which are obviously related - retirement accounts? Sort of lay that out for me.
ZANDI: Yeah, it's already happening with spending. You can see - you can feel it in consumer spending. Consumers are getting more cautious in their spending. Discretionary spending is off. Travel's down. You can actually see it very clearly in foreign travel. You know, overseas, people are pretty upset by all this, and they're boycotting American goods, and they're not traveling here, and you can feel it there. You can see it in consumer confidence. You can see it in business confidence - can see it in the stock market. So it's the consumer that's feeling the brunt of it first, and with good reason. You know, the tariffs are attacks on American consumers.
But, you know, if businesses - the way you get to recession is, well, businesses see the weakening in their sales, and if they start laying off workers, then we're done. We're going into recession. That hasn't happened yet. That's the good news. But I'm sure businesses are thinking about it at this point. And we'll see what happens over the next couple of days. We're going to get a lot more information on the tariffs here pretty soon. And if it looks like the tariffs are going to be broad-based and could be more persistent, then we might see more layoffs, and that would be the start of a recession.
MARTIN: So the Trump administration is saying that any pain caused by tariffs will be short term. What do you say to that?
ZANDI: I think it's going to be a lot of pain, and I don't know why we need to go through it. I just don't get it. And, you know, in the long run, we - you know, we're mostly focused on the short-run effects of tariffs. They're bad long run. I mean, you know, they have all kinds of - create all kinds of problems for supply chains. And we're going to see a shifting of investment patterns away from the United States, and it hurts long-run productivity growth. I mean, it goes to competition. One of the long-term benefits of free trade is it makes markets very competitive, and it forces businesses to invest and think about making their business more productive and efficient. And if you have higher tariffs, they don't do that. And that's the - that's also the evidence from the tariffs under President Trump's first term. So the impacts of tariffs and trade wars are here right in front of our face, and they're going to be with us for a long time to come.
MARTIN: So before we let you go, as briefly as you can, the tariffs - clearly a driver and consumer confidence and all these other issues that you're talking about. Is there any other factor? I'm thinking of those cuts to jobs and programs by this DOGE entity run by...
ZANDI: Yeah.
MARTIN: ...Elon Musk. Is that having an effect as well, and how?
ZANDI: Yeah. Yeah, absolutely, Michel. I mean, it adds to the uncertainty, right? I mean, it's the haphazard nature of the cuts. I mean, you know, focus on government efficiency. Have at it. I mean, that's great. We should - you know, every business does that every single day, and government should do the same thing. But it's the haphazard nature of all of it that I think is just creating a lot of angst and adding to the angst created by the tariffs.
MARTIN: OK.
ZANDI: So, yeah, I think that's playing a role.
MARTIN: That's Mark Zandi. He's chief economist with Moody's Analytics. Thanks so much for joining us once again.
ZANDI: Yeah, sure thing. Transcript provided by NPR, Copyright NPR.
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