On Thursday, President Donald Trump acknowledged the potential for “transition problems” in the U.S. due to tariffs. Nonetheless, he asserted that the U.S. economy remains in “very good shape,” even as the stock market declined amidst ongoing uncertainties stemming from the trade war with China.
The Context
Since Trump introduced and then swiftly reversed extensive “reciprocal” tariffs that target numerous countries, including some of America’s largest trading partners and allies, Wall Street has experienced a whirlwind of activity.
As of Wednesday morning, the broad market index was nearing bear market status, while the U.S. bond market started to witness a global sell-off.
Later on Wednesday, Trump declared a 90-day suspension on country-specific “reciprocal” tariffs, opting instead for a universal 10 percent tariff on all nations except China.
This announcement caused a rapid surge on Wall Street, as the market recuperated some of the losses incurred following Trump’s initial tariff announcement the week prior.
However, there was a significant exception regarding China, the U.S.’s largest trading partner, which would face an enormous 125 percent tariff, Trump revealed on Wednesday. The following day, the White House clarified that this 125 percent would be added to the existing 20 percent tariff on China, resulting in a total of 145 percent.
What To Know
“Again, there will be a transition cost and transition problems, but ultimately, it’s going to be a beautiful thing,” Trump stated during a Cabinet meeting on Thursday afternoon.
This meeting coincided with Wall Street suffering significant losses after the White House’s statement about China’s 145 percent tariff rate, which diminished some of the gains made the previous day.
By midday Thursday, the S&P 500 had fallen 5 percent, erasing part of Wednesday’s 9.5 percent gain. The Dow Jones Industrial Average was down 1,724 points, or 4.2 percent, as of 12:40 p.m. ET, while the Nasdaq composite experienced a 5.7 percent decline.
During the Cabinet meeting, Trump also claimed he had “taken in hundreds of billions of dollars a year from China” during his first term. However, experts note that companies generally respond to import tariffs by raising consumer prices, meaning American consumers bear most of the financial burden of U.S. tariffs.
Additionally, Trump stated on Thursday that he “went four years without inflation.” While inflation was indeed low during Trump’s presidency, this has mainly been attributed to the prolonged recovery following the 2008 financial crisis, the COVID-19 pandemic, and the Federal Reserve’s efforts to maintain low inflation rates by increasing its benchmark rate.
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Trump mentioned to reporters on Wednesday that he opted to delay certain tariffs as people were becoming “yippy” and “queasy,” particularly concerning bond market losses.
While Wall Street expressed relief, analysts cautioned about ongoing volatility due to the lingering uncertainty over Trump’s strategy and the possibility of further escalation in the U.S.-China trade conflict.
Following Trump’s announcement of a 90-day tariff pause, Goldman Sachs lessened its recession prediction, cutting the risk to 45 percent, while JPMorgan Chase maintained its 60 percent recession forecast.
The Wall Street titan deemed the pause on Trump’s “draconian” reciprocal tariffs as “a positive development, all else being equal.”
“However, not all else is equal,” JPMorgan economists remarked in a report acquired by Newsweek. “More alarming is the rise in tariffs on China to an astounding 125%.” They continued, “In light of the ongoing policy chaos regarding trade and domestic fiscal matters, alongside the substantial losses in equity markets and reduced confidence, it is difficult to envision the U.S. avoiding recession. Concurrently, China is likely to be severely impacted, potentially inciting a significant policy response.”
What People Are Saying
Treasury Secretary Scott Bessent spoke about the market downturn during Thursday’s Cabinet meeting: “An up two down one ratio isn’t bad, or even an up ten down five. As we’ve discussed, as we engage with these countries for their best offers, we will achieve a level of great certainty regarding tariffs over the next 90 days.”
Former Treasury Secretary Janet Yellen, who served under President Joe Biden, shared her views with UJ: Trump’s tariffs are “the worst self-inflicted wound that I have ever witnessed … inflicted on a well-functioning economy.”
Yellen, who is now a professor emeritus at the University of California, Berkeley, also commented on the effectiveness of the Trump administration, saying, “I’m afraid I cannot assign it a passing grade.”
This is a developing news story and will be updated as further information becomes available.
