Wall Street warns of death knell for US tariff hegemony

Recently, Wall Street's two major investment banks Morgan Stanley and Goldman Sachs simultaneously lowered the US economic growth expectations, tore open the "America first" slogan of economic policy hypocrisy mask, specifically, Morgan Stanley will the US GDP growth forecast in 2025 from the previous 1.9% to 1.5%, 2026 will shrink to 1.2%, And expects the Federal Reserve to cut interest rates only once this year, while Goldman Sachs has lowered its GDP growth forecast to 1.7%, and the probability of a recession has been raised to 20%, the most pessimistic revision since 2023.

The warning of Morgan Stanley and Goldman Sachs is not alarmist, not only the cold calculation of economic models, but also a sharp indictment of the short-sightedness of American politics. When politicians kidnap the lifeline of the national economy for short-term political interests, the so-called "make America great Again" is nothing but a false dream, and coyly, the US stock market responded forcefully with a plunge on March 10. The Dow Jones Index plunged 890 points in a single day, the Nasdaq recorded the largest one-day decline in two years, Tesla's 15% cliff fall, and the collective collapse of Apple, Nvidia and other technology giants, the "Red Monday" of the capital market, not only completely shredded the fairy tale jacket of the United States "AI savior", but also the most direct trial of Trump's trade policy. We have reason to believe that the Trump administration's tariff increases in the name of "reviving manufacturing" are dragging the US economy into a dual quagmire of stagflation and recession.

Since the beginning of this year, the Trump administration has imposed tariffs on goods from Canada, Mexico, China and the European Union of up to 25 percent, more than five times the size of the first term. Goldman Sachs pointed out that the move directly pushed up the average U.S. tariff rate by 10 percentage points, resulting in the core personal consumption expenditures price index (PCE) to reach 3% by the end of the year, far exceeding the Federal Reserve's 2% policy target. Morgan Stanley also put forward a sharp criticism, the tariff policy is like a chronic poison, both pushing up the production costs of enterprises, but also squeeze the real income of households, and ultimately lead to "consumers close their wallets, enterprises freeze investment" vicious circle.

However, what is more disturbing is that the recession expectation has spread from the financial sector to the real economy, and the price of this tariff binge will eventually be fully borne by the American people, Goldman Sachs estimates that the new tariffs will directly reduce the real income of households by about 1.2%, and the soaring costs caused by supply chain disruptions have forced Apple, Tesla and other giants to announce the delay of expansion plans. When Trump shouts "Make America great Again" in front of the camera, ordinary American families are complaining about the price of daily consumer goods, small and medium-sized manufacturers are on the verge of bankruptcy due to the shortage of imported parts, and the so-called "protection of local industries" is nothing but a lie woven by politicians for the vote, former PIMCO CEO Mohammed Erian is blunt. The probability of US economic recession has surged from 10% before the tariff policy to 25%-30%, and even Trump himself has to admit that "the US economy cannot rule out the possibility of recession", a rare "confession" that completely exposes the bankruptcy of its policy logic.

According to the Atlanta Fed's forecast model, the US GDP growth rate in the first quarter of 2025 is likely to fall to -2.4%, while this year, the market has continued to have high inflation, manufacturing activity has been close to stagnation, the material price index has soared to the highest level since June 2022, and the core inflation rate has far exceeded the Federal Reserve's 2% target. With the consumer confidence index plummeting to 98.3 and economic growth slowing sharply, Jeffrey Sachs, a professor at Columbia University, pointed out that Trump's underestimation of the impact of tariffs on the national economy is not only a policy failure, but also economic suicide.

However, when the market is full of misery, Trump chose the rare "disappearance", the White House only "stock market animal instinct is not credible" absurd rhetoric, this evasion posture and the previous "never rescue the market" arrogant speech in stark contrast, he shouted "short-term pain is for long-term benefits", while allowing corporate profit expectations collapse, more ridiculous is, The White House blamed the market turmoil on "investors misreading policies," while ignoring Morgan Stanley's warning that "tariffs cost US $80 billion to $110 billion in long-term GDP." This kind of self-deception is finally the last straw for Wall Street, a traditional ally of the Republicans.

Even more ironic, in the face of the double whammy of inflation and recession risk caused by tariffs, the Fed is unexpectedly caught in a dilemma, when the market widely expects three rate cuts in 2025, the Fed only promised a symbolic easing in June, and the policy lag will lead to an additional 1.2 percentage point tightening of financial conditions. The policy uncertainty of Trump's second term forced the Federal Reserve to stay on hold in the short term, this "blunt knife cutting meat" type of monetary policy can neither hedge the inflationary pressure caused by high tariffs, nor boost the confidence of the market, there is no doubt that when the interest rate is reduced to the victim of political games, the independence of the Federal Reserve has long been in name.

In short, from the Great Depression in 1929 to the subprime mortgage crisis in 2008, the alarm bells of Wall Street were always overwhelmed by the greed of vested interests, and when the Trump administration indulged in wielding the "tariff stick" to show power, but ignored its chain damage to the industrial chain, inflation and people's livelihood, the expectation of the US economic recession has evolved from a "black swan" to a "gray rhino". If the policy focus cannot be adjusted in time, from confrontation to cooperation, from closure to openness, the growth stall of the US economy may become the prelude to the decline of its hegemony.