Weekly Forecasts 6/2025

Tariff-wars, credit recession update and market liquidity forecasts

Forecasts:

1. Tariff-wars have begun (or have they?)

2. Data continues to paint a conflicting picture for the U.S. economy going forward (the U.S. consumer may be about to cave in).

3. Global money supply (market liquidity) forecasts indicate a tumultuous spring for markets, and a rally in March.

We have been advocating for long that a global recession would be needed to clear the ‘excess’ debt and leverage as well as unprofitable, “zombified”, corporations from the system. Everything that is being put in motion globally, but especially in the U.S., run the risk that the bloated financial system will implode within itself as a result creating a depression or even a systemic meltdown. We will open some of those risks in the forecasts presented herein, and continue to detail them in the coming weeks.

Into the tariff-wars

As expected, U.S. President Donald Trump issued his first tariffs aimed at “punishing” those taking “advantage” of the U.S. These included 25% tariffs on imports from Canada and from Mexico, with lower 10% tariff issued on energy imports from Canada, and a 10% tariff on ‘duty goods’ from China. Tariffs on Canada and Mexico were put on a 30-day suspension after a deal was struck between Mexico’s President Claudia Sheinbaum, Canada’s Prime Minister Justin Trudeau and President Trump. Like we noted in the January Black Swan Outlook, tariffs are first-and-foremost a negotiation tool for President Trump, which is why we did not include them into our economic forecasts, yet.

Yet in negotiations, gridlocks and over-reactions are possible, even likely, which can set an actual trade war ablaze. If such would come to be, tariffs would start to exert a heavy toll on the U.S. and global economies. For example, during the first 10 months of past year, imports from Canada accounted for around 62% of U.S. crude oil imports, while imports from Mexico accounted for around 7%. Canada was in the process of issuing extensive counter-tariffs, which would have included, e.g., different forms of wood. This would carry a notable effect, because the U.S. imports most of its wood from Canada and there are no other global sources to replace them. So, if tariffs come in effect after the 30-day ‘truce’, they will increase inflation pressures in the U.S. by, e.g., raising prices of some energy and a wide-variety of wood products. China has also announced counter-tariffs, which would come in effect on February 10, without a deal.

At this point, the effects of tariffs to the world economy are negligible, and they can even be net-positive in the short-run. Beijing is likely to increase stimulus during the first months of the year to provide additional support for the Chinese economy (to present it as strong). This will provide support to global economy, like we noted in our January Outlook and in Weekly Forecasts 3/2025. In the latter, we also noted that the medium-term cycle of the world economy seems to have turned upwards, which implies that the improved economic momentum would provide some shielding against the effects of tariffs, for few months at least. The big question is, what would happen, if the ‘tariff-wars’ would truly commence?

When President Trump took office the first time, in early 2017, the global economic cycle was “old”. This meant that the U.S. economic expansion had lasted for a long time, and it reached a new record (time without a recession) at the end of 2019. Global recession would have probably commenced during the H1 2020, but Coronavirus delivered a “Grey Swan”. Lockdowns led to artificially deep global recession, resuscitated with a gargantuan stimulus. The massive fiscal and monetary stimulus created a bubble in every single financial asset class imaginable, from cryptocurrencies (the most speculative) to sovereign bonds (debt). Trariff-war would be unlikely to bode well with the global financial market bubble (see also our liquidity forecasts below).

Moreover, the global banking crisis, which two first waves we saw in September/October 2022 and in March 2023, is still very much ‘brewing’ under the surface. If tariff-wars would commence, they would re-accelerate inflation causing another rate hiking cycle by the Federal Reserve, which would lead the U.S. and global economies into a recession. Such developments would, most likely, ignite the third wave of the banking crisis.

What makes such an outcome (a trade-war leading to an economic collapse) more likely is the fact that the power structure of the world has changed. For example BRICS have showed that the world is much less unipolar, also economically, than it was during President Trump’s first term. Sanctions targeting Russia have also hastened the development of this ‘multipolarity’. Countries may feel less threatened and respond in kind to U.S. tariffs, like Canada, China and Mexico are (were) planning to do. In the worst-case, President Trump may end up hurting the U.S. and global economies in a serious manner.

This is why we have to warn that, if tariff-wars commence at some point, their effect could be very detrimental in the medium-term. The next few weeks show the direction of travel.

Declining delinquencies

Two weeks ago, we noted some rays of light in the U.S. credit recession. This week we continue to present (some) more rays of light. First, delinquency rate of consumer loans stopped increasing during Q3.