Apollo Economist Torsten Sløk Predicts 90% Recession Risk by 2025 Due to Trump's Tariffs Impacting Small Businesses and US GDP

US • Business • 04/22 02:30
Apollo Economist Torsten Sløk Predicts 90% Recession Risk by 2025 Due to Trump's Tariffs Impacting Small Businesses and US GDP

Torsten Sløk, Chief Economist at Apollo Global Management, warns of a 90% chance of a U.S. recession in 2025 if tariffs from former President Trump's era persist. These tariffs, particularly on Chinese imports, could reduce GDP by four percentage points and severely impact small businesses, which are crucial to the U.S. economy. Sløk describes this potential downturn as a 'Voluntary Trade Reset Recession,' driven by policy choices rather than external shocks. The tariffs have already caused significant economic strain, with predictions of widespread small business bankruptcies and operational disruptions.

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04/22 02:30

Apollo Economist Torsten Sløk Predicts 90% Recession Risk by 2025 Due to Trump's Tariffs Impacting Small Businesses and US GDP

Torsten Sløk, Chief Economist at Apollo Global Management, warns of a 90% chance of a U.S. recession in 2025 if tariffs from former President Trump's era persist. These tariffs, particularly on Chinese imports, could reduce GDP by four percentage points and severely impact small businesses, which are crucial to the U.S. economy. Sløk describes this potential downturn as a 'Voluntary Trade Reset Recession,' driven by policy choices rather than external shocks. The tariffs have already caused significant economic strain, with predictions of widespread small business bankruptcies and operational disruptions.

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Tariffs and the 90% Recession Risk

In a note to clients and during recent media appearances, Sløk emphasized that the current trajectory of U.S. trade policy—particularly the sweeping tariffs imposed on imports from China and other nations—has created a highly unstable economic environment. “Tariffs have been implemented in a way that has not been effective,” Sløk wrote, warning that if these policies persist, “we will absolutely have a recession in 2025.”

Sløk’s 90% recession probability is based on Apollo’s internal modeling, which incorporates historical data from the 2018 tariff regime and current macroeconomic conditions. According to Sløk, even modest tariff increases during the previous trade war reduced GDP by 0.25% to 0.7%. The current round of tariffs, which includes double-digit rates and a 145% levy on Chinese imports, could subtract nearly four percentage points from GDP in 2025.

Small Businesses at the Epicenter

Sløk’s analysis underscores the disproportionate burden tariffs place on small businesses, which account for a significant share of U.S. economic activity and employment. As of January 2025, businesses with fewer than 500 employees were responsible for approximately 110 million jobs—four times the employment generated by larger firms, according to Apollo’s research.

“Small businesses that have for decades relied on a stable U.S. system will have to adjust immediately and do not have the working capital to pay tariffs,” Sløk warned. He predicted a cascade of negative outcomes: “Expect ships to sit offshore, orders to be canceled, and well-run generational retailers to file for bankruptcy.”

In 2014, the most recent year with comprehensive data, small businesses contributed $5.9 trillion to GDP, representing 44% of the total. Their role in private fixed investment is also substantial. In Q1 2024, U.S. private fixed investment totaled $4.2 trillion, far outpacing the $1 trillion in capital expenditures by S&P 500 companies.

Economic Fallout Already Underway

The economic strain is not merely theoretical. Ryan Petersen, CEO of logistics firm Flexport, echoed Sløk’s concerns, stating that “a wave of American small businesses will go bankrupt this year if the tariff policies on China don’t change.” Flexport data suggests that approximately $1 trillion in economic activity has already been lost due to the tariffs.

Further compounding the issue, a Vistage Worldwide survey conducted for The Wall Street Journal in March found that two-thirds of small businesses expected to be negatively affected by tariffs and related trade issues. These concerns are beginning to manifest in operational disruptions, with reports of delayed shipments, canceled orders, and rising input costs.

GDP Impact and Broader Economic Indicators

Sløk’s estimate that tariffs could reduce GDP by four percentage points is rooted in comparative analysis with the 2018 trade war. At that time, even limited tariffs led to measurable declines in economic output. The current policy environment, with its broader scope and higher rates, is expected to have a far more severe impact.

The Federal Reserve has also acknowledged the potential for tariffs to slow growth and increase inflation. Fed Chair Jerome Powell recently noted that new tariffs could have a “larger economic impact than anticipated,” signaling concern over both supply chain disruptions and consumer price pressures.

Diverging Views Among Policymakers

While Sløk and other economists have raised alarms, not all policymakers share this outlook. Treasury Secretary Scott Bessent has pushed back against recession warnings, stating, “I see no reason that we have to price in a recession.” However, even Bessent has acknowledged the need for “clarity” on tariffs and has hinted at possible delays or exemptions.

Former Treasury Secretary Lawrence Summers, by contrast, has warned that Trump’s tariff policies could result in the loss of 2 million American jobs. JPMorgan Chase CEO Jamie Dimon has also expressed concern, calling a tariff-induced recession a “likely outcome” and noting that his conversations with other business leaders have been filled with “recessionary talk.”

A Voluntary Trade Reset Recession

Sløk has coined the term “Voluntary Trade Reset Recession” to describe the current economic threat. Unlike recessions triggered by financial crises or external shocks, this downturn would be the result of deliberate policy decisions. “The bottom line: if the current level of tariffs continues, a sharp slowdown in the U.S. economy is coming,” Sløk concluded.

The Apollo economist’s warning comes amid heightened volatility in financial markets and growing unease among retailers and manufacturers. President Trump’s recent “Liberation Day” announcement, which included a 90-day pause on most tariffs but raised others, has only added to the uncertainty.

Retail executives from companies such as Walmart, Home Depot, Lowe’s, and Target are scheduled to meet with Trump to discuss the impact of tariffs on their operations. Many of these firms source a significant portion of their products from China and are facing profit pressures due to the 145% tariff rate.

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