Top economist who previously sounded the alarm on tariffs sees a possible scenario where Trump ‘outsmarted all of us’

Apollo Global Management's chief economist, Torsten Sløk, posits a scenario where extended, moderate tariffs (30% on China, 10% on others) could benefit the U.S. by reducing economic uncertainty and generating an estimated $400 billion in annual revenue. This contrasts with Sløk's prior warnings about the recessionary risks of high tariffs, suggesting a potential strategic shift where tariffs are used to encourage trade liberalization and boost U.S. tax revenue, potentially benefiting both the U.S. and its trade partners.

Analysis

Torsten Sløk, chief economist at Apollo Global Management, has articulated a speculative scenario for U.S. trade policy that reframes tariffs as a long-term strategic tool rather than a purely disruptive measure. He posits that maintaining tariffs at a moderated level—specifically 30% on China and 10% on other nations—and extending negotiation deadlines by 12 months could paradoxically de-escalate trade tensions. This framework is projected to generate approximately $400 billion in annual revenue for the U.S. government while simultaneously reducing the economic uncertainty that has hampered business investment and financial markets. This perspective represents a notable departure from Sløk's previous warnings in April, where he identified aggressive tariff implementation as a potential catalyst for a recession. The hypothesis emerges as a 90-day pause on reciprocal tariffs nears its end with few comprehensive trade deals finalized, suggesting this 'managed tariff' approach could be a potential path forward to stabilize global trade relations and improve the U.S. fiscal position.

Key Decisions for Investors

• Investors should closely monitor official U.S. trade policy announcements as the 90-day tariff pause concludes, as any move toward a stable, long-term tariff framework as speculated could significantly reduce market volatility.
• It is prudent to re-evaluate portfolio holdings based on this potential dual impact, as sustained, moderate tariffs could remain a headwind for import-dependent sectors while the projected $400 billion in federal revenue could positively influence the U.S. fiscal outlook and bond markets.
• Asset managers should consider adjusting macroeconomic models, as a shift from erratic, high tariffs to a predictable, moderate structure would lower the tail risk of a trade-induced recession that was previously a primary market concern.