The stock market, the economy, and the entire world order are at risk if President Donald Trump forges ahead with his tariff plans, Deutsche Bank says.
Trump’s announcement last week of at least 10% tariffs on goods from almost all foreign nations — and duties exceeding 50% in some cases — sent shockwaves through global markets.
The president has stood by his plan to improve America’s trading terms with its partners despite broad backlash and threats of retaliation from other world leaders. The result has been the fourth-worst two-day decline for stocks since World War II, the bank’s researchers said in a note published Monday, when global stocks were deep in the red again.
Jim Reid, Deutsche’s global head of macro and thematic research, and his coauthors described Trump’s tariff rollout as the “biggest shock to the global trading system” since the 1970s and the “largest tax increase for the US consumer” since the Vietnam War.
They underscored that the existing trade regime has correlated with ballooning US wealth, as companies and their shareholders have benefited from better supply chains, a broader marketplace, and access to cheaper labor in emerging countries. Ending it could raise costs for companies and narrow their profit margins, weighing on their stock prices.
“US equities have arguably been the ultimate beneficiary of this era and as such have a disproportionate amount to lose by its unravelling, especially when starting valuations have been so high,” they said.
Deutsche Bank’s economists most recently forecast less than 1% growth this year, unemployment approaching 5%, and a spike in core inflation toward 4%.
“Given the market moves and monumental uncertainty in recent days, this could well prove to be too optimistic,” the bank’s researchers said, adding that Trump’s intransigence has paved the way for further market chaos.
They added that if Trump doesn’t find an “elegant off-ramp” but instead “doubles down,” that would have “immense global implications for 2025 and the years and decades ahead.”
That’s because if international trade deals fall apart, it will affect America’s relationships with respect to “defense, geopolitics and the multi-lateral rules-based world order,” they said.
UBS economists also sounded the alarm on Monday. Assuming the tariffs aren’t negotiated down, they now expect real US GDP growth of 0.4% this year — down from 1.6% — and 2.2% price growth with core inflation at 4.6% by the end of this year.
They also predicted the Federal Reserve would cut interest rates by 1 percentage point this year to shore up economic growth.
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