Weighing the Fallout From Trump’s Looming Trade War
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One of Wall Street’s worst fears about the return of Donald Trump to the White House is poised to become reality: U.S. stock futures are down sharply on Monday, as are global markets, as huge tariffs against Canada, China and Mexico are set to take effect just after midnight Eastern.
Some still hope that the levies, which are expected to cover a third of American imports, or $1 trillion in goods a year, either won’t come to pass or won’t last long. But business leaders, economists and investors are wary that Trump’s open-ended goals mean they’ll be in force for a while, leading to a trade war that could have devastating effects on the American economy.
The latest: The three countries pledged retaliation, in what would be a quick escalation of a trade battle against three of America’s biggest trade partners. (Trump’s executive order authorizing the tariffs allows for Washington to ratchet up its levies if the targeted countries impose counter-tariffs.)
Prime Minister Justin Trudeau of Canada warned Americans that the battle would “have real consequences for you,” as he discussed imposing tariffs on products from politically important U.S. states including Kentucky bourbon, Florida oranges and Pennsylvania-made Harley-Davidson motorcycles.
Trump defended his plan over the weekend: “THIS WILL BE THE GOLDEN AGE OF AMERICA! WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!)” he wrote on Truth Social.
Business groups expressed concern about the consequences of a trade war. American carmakers “should not have their competitiveness undermined” by the tariffs, Matt Blunt of the American Automotive Policy Council told Business Insider.
The Fed must figure out how to respond, including whether tariffs pose a long-term threat to inflation. The central bank has already paused reductions in interest rates, and isn’t expected to resume them for at least a few months.
Criticism of Trump’s plans came in from across the political spectrum. “The Dumbest Trade War in History” was the headline of an opinion piece by The Wall Street Journal’s editorial board, which has generally backed the president. And Senator Rand Paul, Republican of Kentucky, argued that “taxing trade will mean less trade and higher prices.”
On the Democratic side, Larry Summers wrote in a lengthy thread on X that the Canada and Mexico tariffs were “inexplicable and dangerous.”
The big question is how long all this lasts. The common wisdom was that Trump’s threats were a negotiating tactic. But the lack of clear guidelines suggest that this is more the kind of asymmetric deal-making Trump is known for, leading to confusion for executives and world leaders.
One concern on global leaders’ minds is whether Trump’s plan permanently scrambles the global financial order — and perhaps leaves the United States in the cold.
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The Trump administration appears to ratchet up pressure on Panama. Secretary of State Marco Rubio told the country’s leader that President Trump had determined that China exercised “influence and control” over the Panama Canal and demanded “immediate changes.” Trump said that “we’re going to take” the canal back, or “something very powerful is going to happen.” The messaging casts further uncertainty over the fate of the waterway, a key channel for global commerce.
OPEC Plus reportedly plans to reject pressure to sharply increase crude production. The group of oil-producing countries is likely to stick with planned gradual increases in output, despite calls by Trump to move fast to lower prices, according to Reuters. Analysts said the group would probably embark on diplomatic efforts to avoid its members facing retaliation from Washington.