Tariffs are tightening, but not suffocating: there will be less growth, but no recession.

Market performance since February has been primarily influenced by news of increased tariffs on American imports from the rest of the world.

Compared to the average tariff of 2.5% we had at the beginning of the year, we have experienced a series of announcements that brought the level to around 32%, "rates not seen in at least 100 years," notes Jacobo Ortega Vich , Director of European Investments at Santander Asset Management . To the extent that "these levels would make a recession inevitable (first in the United States, but very likely also globally), the market reaction to these threats was very negative, with equities registering sharp falls and fixed income pricing in sharp interest rate cuts by central banks."

This is why, since mid-April, and faced with a clearly more negative economic growth scenario than at the beginning of the year, "American authorities began to modify their discourse, seeking a de-escalation in the trade war and announcing exemptions and reductions," he asserts. With the measures announced by the Trump administration so far, "the tariff would be in the 15% range, but this scenario has been altered again following this week's decision by the United States Trade Court, which revoked part of these measures."

Living with uncertainty

In Ortega Vich's opinion, "it is evident that we will have to live with uncertainty , although it seems clear that we have left the most negative scenario behind, and therefore, we believe that the US economy avoids the risk of recession and its growth rate will move within the moderate range."

In parallel, "a second focus for the markets is the announcement of fiscal measures in the United States consisting of extending the tax cuts implemented in 2017 and that were set to expire at the end of this year." Although this extension is a positive sign for growth, "it is raising doubts about the sustainability of the US public debt."

It's true that, despite these uncertainties, "real activity data continue to point to a progressive moderation in growth , but without risks of recession." US GDP growth, in fact, "was slightly negative in the first quarter of the year, but was actually distorted downward by very strong import growth that preempted the potential impact of tariffs," he insists.

Tax cuts are raising questions about the sustainability of US public debt.

It is for these reasons that we expect "a certain rebound in growth in the second quarter. Beyond the volatility in the real activity data, we believe the most reliable signal is that provided by the leading indicators of both business and consumer confidence, pointing to low but positive growth in the second half of the year."

In short, "we believe that this entire environment of uncertainty regarding both tariffs and fiscal policy will ultimately take its toll on growth, not to the point of causing a recession," but it will cause "US GDP rates both this year and next to be significantly lower than the 2.5%-3% recorded over the last three years." These levels, in turn, "may lead to adjustments in the outlook for profit growth, which we consider one of the main drivers of the performance of stock indices." From the bank's perspective, therefore, "we advocate for diversified management of our clients' portfolios, placing special focus on both the investment horizon and the risk profile."

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