Wall Street Worries Trump Tariffs Could Wreck the Souring Economy

The Washington Post

11:39 JST, March 5, 2025

Stock markets wobbled Tuesday amid fears that President Donald Trump’s imposition of tariffs on the nation’s three largest trading partners will hobble the world’s largest economy and boost inflation.

All three major U.S. markets sank at the opening bell before regaining lost ground. The Dow Jones Industrial Average, the worst performer, lost more than 1.5 percent and has surrendered almost 1,400 points in the past two days.

Wall Street’s jitters reflect a rapid change in sentiment. After welcoming the president’s promises of tax cuts, deregulation and a business-friendly White House, investors worry that Trump’s 360-degree trade war is compounding the economic risks of the administration’s self-described revolutionary agenda.

Elon Musk’s efficiency drive has dismantled some parts of the federal government and frozen others. A possible government shutdown looms in 10 days. And the president maintains an ambitious to-do list – including tax legislation, migrant deportations and establishment of a cryptocurrency reserve – that is unsettling many business executives.

Late in the day, the fog of uncertainty enveloping the president’s intentions thickened when Commerce Secretary Howard Lutnick said Trump on Wednesday would “probably” lower the tariffs on Canada and Mexico that he had announced only 24 hours earlier.

“The chaos that has ensued – we cannot plan and execute a business plan when there are so many unknowns and things are changing so rapidly,” said Stephen Bullock, president of Power Curbers in Salisbury, North Carolina.

The manufacturer expects to lose sales in Canada, its largest export market, where the government has announced 25 percent tariffs on U.S. products in retaliation for Trump’s levies on Canadian goods. Power Curbers makes giant paving and curbing machines, which sell for $350,000 to $500,000.

“So with a 25 percent tariff on our machines, it cripples us,” Bullock said.

Bullock had planned to increase production starting April 1 and hire five or six additional workers. But now those new jobs, each paying an annual salary around $50,000, are on hold.

Effective Tuesday at 12:01 a.m., the president imposed tariffs on goods from Canada, Mexico and China, saying the three countries were responsible for the flow of illegal fentanyl into the United States, which has led to more than 250,000 overdose deaths in recent years.

These tariffs – and others planned on goods from the European Union, automobiles, pharmaceuticals, semiconductors, copper, steel, aluminum and lumber – will encourage manufacturers to move their plants back to the United States, Trump says.

In recent weeks, the president has hailed decisions by manufacturers such as Honda, Apple and Taiwan Semiconductor Manufacturing Co. to build new U.S. plants as early signs of success.

But Trump’s tariffs will mean “higher unemployment, higher prices and reduced competitiveness of the United States,” said former treasury secretary Lawrence Summers.

“These tariffs are utterly ill-conceived. They disadvantage American producers who are integrated across Mexico and Canada relative to producers in the rest of the world, particularly in Asia,” Summers said. “This is a prescription for turning the economy back into the economy of the 1950s when Americans were much poorer than they are today.”

If the tariffs remain in place all year, alongside retaliation by U.S. trading partners, they will cut more than one percentage point from the economy’s growth rate, according to Kathy Bostjancic, Nationwide Mutual’s chief economist. Before the president carried out his threat to increase taxes on goods from Canada, Mexico and China, the economy was expected to grow this year at an annual rate of about 2 percent, according to a survey by Bloomberg.

Economist Carl Weinberg at High Frequency Economics is even gloomier. He expects the economy to shrink all year and tip into “a prolonged recession,” the first since the pandemic in 2020.

Speaking after financial markets closed, Lutnick told Fox that the administration would announce a reduction in its tariffs on Canadian and Mexican goods to “somewhere in the middle” to recognize promises by both countries to intensify their border control efforts.

The tariffs also will boost consumer price inflation, now running at a rate of 3 percent, by 0.6 percentage points. To the typical household, that will mean roughly an extra $1,000 in costs, Bostjancic said.

Two of the nation’s largest retailers, Best Buy and Target, warned that the new taxes on imports will mean higher prices for American consumers.

The tariffs could quickly send gas prices up in much of the Northeast and Midwest, according to an analysis by Patrick De Haan, head of petroleum analysis at GasBuddy, a platform that tracks prices at the pump.

Consumers in the Northeast will be hit hardest and fastest, as much of their fuel comes from an Irving Oil refinery in New Brunswick, De Haan wrote. The price of a gallon of gasoline or diesel will jump 20 to 40 cents by mid-March, he said.

Higher prices are likewise forecast throughout the Midwest and the Rockies, which also depend on Canadian oil. In the Great Lakes region, prices will increase 10 to 25 cents a gallon, though not as quickly as in the Northeast, De Haan said.

The auto industry will be among the sectors hardest hit by the new tariffs. With supply chains spread across all three North American countries, the industry is warning of almost immediate price increases on some models of up to 25 percent, according to John Bozzella, president of the Alliance for Automotive Innovation.

Automakers are investing in new U.S. facilities, he said. But building new vehicle and battery plants takes longer than imposing tariffs.

“Auto tariffs in North America could end up increasing costs on consumers before jobs come back to the country,” he said.

Midwest farmers, many in states that backed Trump in the 2024 election, will be among the first to feel the trade war’s sting. China responded to Trump’s latest tariffs on Chinese goods by imposing tariffs on many U.S. agricultural products, including soybeans, corn, wheat, pork and chicken.

Mark Recker, who raises corn and soybeans on 1,500 acres in northeast Iowa, faces a double whammy from the trade war. Trump’s tariffs will make the Canadian fertilizer he uses more expensive, while retaliation by U.S. trading partners will cost him soybean sales in China, corn sales in Mexico and ethanol sales in Canada.

“Anybody in commercial production agriculture knows that we can grow corn, soybeans, you name it. We can grow more than enough for our domestic market. Not a problem. What we need is the export market for all those. You just can’t disregard the export market like that,” he said. “That’s very naive.”

Administration officials dismiss complaints about the president’s trade policies. Treasury Secretary Scott Bessent told Fox that he was “highly confident” Chinese exporters would “eat the tariffs,” allowing Americans to escape rising prices.

The same business groups warning of tariffs’ economic costs made the same argument during Trump’s first term and were wrong, according to a White House official who spoke on the condition of anonymity to discuss an issue they were not authorized to talk about with the news media.

Still, the sense of unease only deepened Tuesday afternoon when Trump threatened to further increase the tariffs on Canadian goods, after Canada retaliated for his trade moves.

“Please explain to Governor Trudeau, of Canada, that when he puts on a Retaliatory Tariff on the U.S., our Reciprocal Tariff will immediately increase by a like amount!” the president posted on Truth Social, referring to the Canadian leader with an insulting barb.

On Capitol Hill, Republicans publicly stood behind the president. House Speaker Mike Johnson (R-Louisiana) endorsed Trump’s critique of trade as frequently “unfair” to the United States and supported the latest tariffs.

“If you just have a little patience with this, let it play out, see how it develops. And I think at the end of the day, America is going to be better off,” he told reporters during the market’s midmorning plunge.

Many Senate Republicans have for months warned against the most extreme versions of Trump’s tariff plans while defending them as negotiating leverage. As Trump has moved forward, GOP lawmakers’ private unease is growing, particularly in states with significant trade with Canada and Mexico, according to two GOP congressional aides and two others briefed on the matter, who spoke on the condition of anonymity to reflect private conversations.

Others remain hopeful Trump’s actions will be quickly reversed.

Business executives, who applauded Trump’s tax cuts and deregulation plans, are concerned that his advisers are not restraining his trade impulses.

During Trump’s first term, his senior team included advisers, such as former treasury secretary Steven Mnuchin and White House aide Gary Cohn, who often acted as a brake on Trump’s tariff plans. CEOs trying to influence the White House about the tariffs have contacted Lutnick and Bessent, viewing it as futile to lobby White House trade hawk Peter Navarro, said two other people familiar with the matter, who spoke on the condition of anonymity to reflect private conversations.

But Trump’s economic advisers were hired only after expressing support for his trade agenda during the transition, limiting their ability to push back now, the people said.

Some of these Cabinet officers have not been sympathetic to business leaders’ complaints. On a call Thursday, U.S. carmakers listened to Lutnick reject their plea for exemptions to the tariffs and insist that they move production back to the United States, two of the people said.

The conversation was first reported by the Wall Street Journal. Executives also have complained to administration officials that they are being punished for complying with the trade deal Trump reached with Mexico and Canada in his first term, with particular frustration emerging among the auto industry, said Jeffrey Sonnenfeld, founder and CEO of the Chief Executive Leadership Institute, citing conversations with numerous industry leaders.