Tariff Roundtable: Global Economy on the Brink of Recession?

As market turmoil continues, our global economists give their view on the ramifications of the Trump administration’s tariffs, and how central banks across key regions might react.

Read more insights from Morgan Stanley. 

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Seth Carpenter: Welcome to Thoughts on the Market. I'm Seth Carpenter, Morgan Stanley's, Global Chief Economist, and today we're going to be talking tariffs and what they mean for the global economy.

It's Monday, April 7th at 10am in New York.

Jens Eisenschmidt: It's 4pm in Frankfurt. 

Chetan Ahya: And it's 10pm in Hong Kong. 

Seth Carpenter: And so, I'm here with our global economists from around the world: Mike Gapen, Chief U.S. Economist, Chetan Ahya, our Chief Asia Economist, and Jens Eisenschmidt, our Chief Europe Economist. So, let's jump into it. Let me go around first and ask each of you, what is the top question that you are getting from investors around the world?

Chetan?

Chetan Ahya: Tariffs.

Seth Carpenter: Jens?

Jens Eisenschmidt: Tariffs.

Seth Carpenter: Mike?

Michael Gapen: Tariffs.

Seth Carpenter: All right. Well, that seems clear. Before we get into the likely effects of the tariffs, maybe each of you could just sketch for me where you were before tariffs were announced. Chetan, let me start with you. What was your outlook for the Chinese economy before the latest round of tariff announcements?

Chetan Ahya: Well Seth, working with our U.S. public policy team, we were already assuming a 15-percentage point increase on tariffs on imports from China. And China also was going through some domestic challenges in terms of high levels of debt, excess capacities, and deflation. And so, combining both the factors, we were assuming China's growth will slow on Q4 by Q4 basis last year – from 5.4 percent to close to 4 percent this year.

Jens, what about Europe? Before these broad-based tariffs, how were you thinking about the European economy?

Jens Eisenschmidt: We had penciled in a slight recovery, not really getting us much beyond 1 percent. Backdrop here, still rising real wages. We had some tariffs in here, on steel, aluminum; in cars, much again a bit more of a beefed-up version if you want, of the 18 tariffs – but not much more than that. And then, of course, we had the German fiscal expansion that helped our outlook to sustain this positive growth rates into 2026.

Seth Carpenter: Mike, for you. You also had thought that there were going to be some tariffs at some point before this last round of tariffs. Maybe you can tell us what you had in mind before last week's announcements.

Michael Gapen: Yeah, Seth. We had a lot of tariffs on China. The effective rate rising to say 35 to 40 percent. But as Jens just mentioned, outside of that, we had some on steel and aluminum, and autos with Europe, but not much beyond that. So, an effective tariff rate for the U.S. that reached maybe 8 to 9 percent.

We thought that would gradually weigh on the economy. We had growth at around 1.5 percent this year and 1 percent next year. And the disinflation process stopping – meaning inflation finishes the year at around 2.8 core PCE, roughly where it is now. So, a gradual slowdown from tariff implementation.

Seth Carpenter: Alright, so a little bit built in. You knew there was going to be something, but boy, I guess I have to say, judging from market reactions, the world w