Tariffs Thrust U.S. Economy Into Uncertain Waters
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What are the implications of U.S. tariffs on China, Canada, and Mexico?
President Trump ushers in a new era of protectionism as U.S. tariffs on China, Canada, and Mexico kick in.
How are U.S. consumers and the economy affected by new tariffs?
So the big fear here is that you get more inflation, which is not what American consumers want, and you get a slowing economy, so something more along the lines of stagflation, which is everyone's least favorite situation.
Plus, Washington pauses all military aid to Ukraine. And after years of struggles, Walgreens closes in on a deal to go private. It's Tuesday, March 4th. I'm Luke Vargas for The Wall Street Journal, and here is the AM edition of What's News, the top headlines and business stories moving your world today. It wasn't a bluff. President Trump's 25 percent U.S. tariffs on goods from Mexico and Canada took effect just after midnight this morning, along with a second round of 10 percent tariffs on imports from China. Trump described the duties taken under his emergency authority as being imposed due to fentanyl smuggling over the U.S. border. And at a White House press conference, he described how he thought Mexico and Canada ought to respond.
That'll start. So they're going to have to have a tariff. So what they have to do is build their car plants, frankly, and other things in the United States, in which case they have no tariffs. I would just say this.
What are the international responses to U.S. tariffs?
As we wait to see if those plans are forthcoming, Canada is responding in kind. Here was Foreign Minister Melanie Jolie.
Let's be clear. If Trump is imposing tariffs, we're ready. We are ready with $155 billion worth of tariffs. That works out to around $107 billion U.S. dollars.
How are investors reacting to the trade tariffs?
Mexico, meanwhile, has yet to respond. But markets aren't waiting to react, as investors reckon with how substantial a trade fight is in store. And here to recap what is already a very busy trading day, I'm joined by Journal Finance Editor for Europe, Alex Frangos. Alex, what reaction are we seeing from various corners of the market to these tariffs? Has anything stood out to you?
Not so much surprised, but stocks are down. Obviously, that happened late yesterday in the US and that's followed up in most parts of Asia and Europe. And investors are sheltering in the safety of government bonds because there's a great deal of uncertainty about how the economy is going to absorb the impact of these tariffs if they stay in place for a long time.
How safe are bonds? And is that the only safe haven that we can see?
Well, for right now, that's generally where investors turn in times like this, because a lot of people are fearing that the economy is going to slow down. And so that would end up with rate cuts eventually, although it's a really confusing mix because tariffs are also inflationary. So the big fear here is that you get more inflation, which is not what American consumers want, and you get a slowing economy. So something more along the lines of stagflation, which is everyone's least favorite situation.
We see the chief U.S. economist at JPMorgan Chase, Michael Ferroli, overnight warning that if tariffs remain in effect, they could push up inflation in the coming months, March through May, firms raising prices to make up for higher imports. I guess this is not too hypothetical. We've seen how this plays out.
It's not hypothetical, but it's also not really certain exactly how it will play out. And, you know, there were tariffs in the first Trump term. That was at a different time. Inflation was very low at the time, and it didn't really cause any additional inflation or not any worrying amount of inflation. So the other thing that is very difficult to predict is how companies and consumers are going to respond to tariffs. It's not just as simple as, OK, well, we're just going to import the same things we were importing and pay a lot more tariff. They'll look for substitutions. They'll look for bringing things in from third countries to try to keep the prices low.
We heard from the Canadian foreign minister there a minute ago about the country heading back against the U.S. with tariffs of its own, a strategy that's not really a surprise. We'd heard about that coming likely for weeks. China, meanwhile, also seems to have done what many were expecting, putting tariffs on U.S. agricultural exports, corn, chicken, soy.
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Chapters
5 chapters
1
What are the implications of U.S. tariffs on China, Canada, and Mexico?
0:03–0:11
2
How are U.S. consumers and the economy affected by new tariffs?
0:11–1:24
3
What are the international responses to U.S. tariffs?
1:24–1:47
4
How are investors reacting to the trade tariffs?
1:47–4:07
5
What strategies are countries using to counteract U.S. tariffs?
4:07–8:51
Speakers
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