The recent US tariffs were based on miscalculations, would drive up inflation and could ultimately lead to a global economic realignment as Europe and Asia respond, explained Invesco’s global head of asset allocation research Paul Jackson in an interview on 3 April 2025. Photo: Maison Moderne

The recent US tariffs were based on miscalculations, would drive up inflation and could ultimately lead to a global economic realignment as Europe and Asia respond, explained Invesco’s global head of asset allocation research Paul Jackson in an interview on 3 April 2025. Photo: Maison Moderne

The US administration’s sweeping trade tariffs are economically flawed, disproportionate and heighten the risk of a US recession, Paul Jackson, global head of asset allocation research at Invesco, told Paperjam.

Global markets have taken a hit following US president Donald Trump’s of new tariffs, ranging from 10% to 50% on imports from over 100 countries. Invesco’s Paul Jackson warned that these tariffs--based on flawed calculations--are fundamentally misguided and could drive up inflation, threatening both domestic and international economic stability. In an interview with Paperjam on 3 April 2025, he explained that the US stock market is already experiencing immediate and tangible losses.

Flawed economic rationale

Jackson reasoned that the underlying justification for these tariffs was deeply flawed. He argued that certain US policymakers operated under the misconception that trade deficits existed because foreign nations were “cheating,” when, in reality, deficits reflected an imbalance between national savings and investment. He mentioned that an effective way to reduce the trade deficit would be to increase domestic savings, although this would slow economic growth. Instead, the tariffs were creating inflationary pressures whilst disrupting global trade relationships.

He questioned the methodology behind the tariff calculations, describing it as arbitrary and economically unsound. There are concerns that the US administration had devised “” based on existing foreign tariffs, but used questionable methods to determine those figures. 

Markets reflected these uncertainties. US stock futures indicated further declines, whilst consumer sentiment weakened. The University of Michigan consumer sentiment index highlighted increasing concerns over inflation, with consumer confidence declining for three consecutive months. US auto sales spiked in March as consumers rushed to buy vehicles before tariff-related price increases took effect. Jackson stated that imports into the US surged in late 2024 and early 2025, which could negatively impact first-quarter GDP figures. At the same time, consumer spending showed signs of strain, with retail sales falling in January.

EU’s strategy

The European Union has signalled its intent to negotiate before implementing retaliatory measures, allowing a four-week window before imposing tariffs on US automobile imports. Jackson stated that this delay serves a dual purpose. It is possible that the EU wants to challenge the flawed calculations behind these tariffs, but at the same time, it allows the US administration to experience the economic consequences firsthand.

He mentioned that a common misunderstanding in US policymaking was the belief that Europe’s value-added tax (VAT) operated as a tariff. “That assumption is completely incorrect,” he said, adding that if VAT were a tariff, then state and local taxes in the US should also be considered tariffs on European goods. He found that the EU was determined to refute such misconceptions whilst simultaneously preparing for potential countermeasures.

The EU had already but had yet to target US automobile exports directly. Jackson stated that while Europe ran a trade surplus in goods with the US, it maintained a trade deficit in financial services and other service sectors. He found that this imbalance could become a key factor in the EU’s response, with potential retaliatory measures affecting US-based digital services, tourism and financial firms operating in Europe.

Economic risks and recession probability

Jackson forecast that if these tariffs were to be fully implemented and remained in place throughout 2025, the probability of a US recession would rise above 50%. Whilst lower interest rates and real wage growth could support economic activity, uncertainty remained high. Over 60 central banks cut rates in 2024, he noted, with 30 reducing rates in the first quarter of 2025. However, political instability, potential government shutdowns and mass deportations in the US presented additional risks.

Europe, by contrast, had benefitted from fiscal stimulus, particularly in defence and infrastructure spending. Jackson mentioned that Germany’s economy, which had stagnated for five years, might see renewed growth due to increased government investment.

ECB’s monetary policy

The , but future cuts remained uncertain amid market volatility. Jackson stated that the ECB would likely delay any further reductions until clearer data emerged on the economic impact of tariffs. “If tariffs push inflation higher, rate cuts could be postponed. On the other hand, if the economy slows significantly, the ECB may be forced into action sooner than expected,” he explained.

He mentioned that while the US Federal Reserve faced similar challenges, it had more room for rate cuts compared to the ECB. If the US economy weakened later in the year, he added, the Fed could move aggressively to lower rates, despite current concerns over inflation.

Jackson concluded that the US administration’s tariff policies could inadvertently strengthen Europe’s economic resilience. He stated that by accelerating Europe’s push for greater independence in trade and defence manufacturing, these measures could lead to long-term structural shifts in the global economy. Whilst short-term disruptions were inevitable, he said, Europe’s strategic response would determine its ability to navigate the evolving landscape.

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