#dinnerwithtrump Since US President Donald Trump first announced sweeping tariffs against most countries earlier this month, investors have been trying to assess whether his aggressive trade policy will trigger a recession in the US economy.

Stocks have fluctuated after recording one of the fastest declines in decades, while credit spreads have widened, the yield curve has steepened, and oil prices have dropped.

However, it is clear that investors have not fully accounted for a downturn in the world's largest economy, according to Henry Allen, Macro (BCBA:BMAm) Strategist at Deutsche Bank.

In a note to clients, Allen pointed out that the equity decline is actually "shallower compared to recent recessions," as well as the widening credit spreads and falling crude oil prices.

"The market clearly does not see a recession as something inevitable," said Allen, adding that such predictions are likely to weaken if Trump's reciprocal tariffs do not go back into effect after a recent 90-day pause.

However, as the market does not seem to anticipate a recession, there is a "significant downside risk if we actually experience one," Allen argues.

"[T]here is no major asset class that has experienced movements consistent with other recessions in recent history," said Allen.

Concerns about the scope of the Trump administration's tariff plans have eased somewhat in recent weeks, supporting investor sentiment.

The White House has stated that they aim to secure dozens of trade agreements during the temporary suspension of tariffs, although the universal 10% tariff and other import taxes on goods such as steel, aluminum, and cars remain in effect.

Earlier this week, the Wall Street Journal reported that Washington is considering lowering the burdensome tariffs on China in an effort to reduce trade tensions with the world's second-largest economy. Trump has raised tariffs on China to at least 145%, prompting retaliatory actions from Beijing and raising concerns about a trade war between the two largest economies in the world.

Trump has not made a final decision, while negotiations are still ongoing and several options are still being considered, reports WSJ, citing people familiar with the matter.