The global economy has entered a delicate phase in 2025, and top financial institutions are sounding the alarm louder than ever. In a startling communication, Goldman Sachs has issued what it refers to as a final warning , highlighting a dangerous escalation in global tariff tensions that could propel the U.S. economy towards a recession.
As trade relationships shake, inflation resurfaces, and market volatility deepens; the forecast is clear: if the tariff standoff continues without a resolution, a recession might be underway.
The current tariff tension stems from a fresh wave of trade disputes between the United States and their notable key trading partners, China and the European union. In late March 2025, the United States imposed a 25%tariff on selected Chinese-manufactured electronics, steel, and agricultural inputs, citing unfair trade practices and intellectual property violations. China retaliated within days announcing counter-tariffs on American soybeans, semiconductors, and electric vehicles.
Meanwhile, tension between the U.S and EU started after Washington implemented a 10% tariff on European auto imports, prompting Brussels to consider reciprocal measures against American tech goods and pharmaceuticals. This back and forth dynamic is reminiscent of the 2018-2019 trade war.
What the data shows.
Goldman Sach analysts pointed out to several key indicators in their recession countdown model and they include:
- Manufacturing Slowdown: the ISM manufacturing index dropped below 47.5 in March 2025. This is the lowest it has dropped since the pandemic recovery in 2021. This contraction signals shrinking output across factories, many of which rely on cross-border inputs now facing tariffs.
- Stock market volatility: the VIX (Volatility index) spiked by 25% in a matter of weeks, reflecting the market anxiety over the global trade climate.
- Supply chain pressure: global shipping rates have increased by 18% year-to-date, and key components such as microchips and lithium batteries are once again facing availability problems.
- Consumer confidence drop: the university of Michigan’s consumer sentiment index fell to a 3-year low, driven by concerns over rising prices, job market uncertainty and economic instability.
All these analysis points to one thing: tightening economic situations, rising cost for businesses, and squeezed purchasing power for consumers.
Which sectors are most at risk?
Goldman Sachs broke down the industries that are most vulnerable to the tariff shocks and subsequent recession pressure. They include:
- Agriculture: U.S. farmers are one of the most hit by this due to the China counter-tariff on soybeans, corn, and pork.
- Manufacturing: there is already an obvious slowdown due to increased input costs and overseas retaliatory tariffs.
- Automotive: considering the higher tariffs on EU imports, there is a raise on vehicle prices, affecting consumer demand and dealership revenue.
- Tech and semiconductors: as China restricts American chip imports, major firms face reduced sales volume and production disruption.
- Logistics: shipping delays and increased freight costs are making supply chains inefficient and costly.
- Retail: apparel, electronics, and home goods retailers that hope on imported goods struggle with rising wholesale prices and delayed shipments.
If this situation persists, sectors like real estate and finance could feel the effect due to reducing consumer confidence and rising default risks.
How close are we to a recession?
Goldman Sachs’ recession probability model now places the risk at 48% within the next 12 months, up from just 27% that it was at the beginning of the year.
Analysts however, caution that if additional tariffs are introduced before the next G7 summit in June, the probability could rise to above 60%.
