What Trump’s tariffs will mean for the economy

Summary

Marketplace Morning Report: What Trump’s Tariffs Will Mean for the Economy Release Date: February 3, 2025

In this insightful episode of Marketplace Morning Report, host David Brancaccio delves into the far-reaching implications of President Donald Trump's newly announced tariffs on the U.S. economy. Released amidst rising tensions with major trading partners, the discussion brings together expert analysis, market reactions, and broader economic insights to paint a comprehensive picture of what these tariffs mean for businesses and consumers alike.

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1. Introduction to New Tariffs

David Brancaccio opens the episode by setting the stage for the day’s primary focus: the imminent implementation of President Trump’s tariffs. With Nivis Safa reporting from the field, listeners are quickly updated on the specifics of these tariffs and their immediate effects.

Key Details:

• Tariff Rates: A 10% tariff on Canadian energy imports and 25% on all other imports from both Canada and Mexico.
• Effective Date: The import taxes are set to take effect in just over 17 hours from the time of reporting [01:08].
• Additional Measures: An increase of another 10% on existing China tariffs, marking a significant escalation in trade tensions [00:58].

2. Economic Implications

The discussion transitions to the economic experts, Kathy Bostjancik and Rob Hayworth, who provide a deep dive into the potential macroeconomic consequences of these tariffs.

Insights from Kathy Bostjancik, Chief Economist at Nationwide Financial:

• The new tariffs impact a larger portion of the U.S. economy compared to those imposed during Trump's first term [01:13].
• Potential scenarios include nearly stagnant economic growth, a possible recession, job losses, and an inflation increase of approximately 0.6 percentage points [01:47].
• Specific sectors facing significant price hikes include automobiles, groceries, fuel, lumber, and electronics, potentially adding $1,000 to $1,200 annually to American household expenses [02:09].

Rob Hayworth's Analysis:

• The tariffs were "larger and more forceful than we were expecting in our baseline forecast" [01:21].
• If Canada and Mexico retaliate as anticipated, GDP growth could be reduced by about 2 percentage points [01:32].
• Auto prices alone could surge by up to 10%, reflecting substantial sectoral impacts [02:03].

3. Market Reaction and Financial Indicators

Nivis Safa provides a real-time update on how financial markets are responding to the tariff announcements, highlighting the volatility and shifts in investor sentiment.

Market Movements:

• Stock Indices: The S&P 500 is down by 1.4%, Nasdaq by 1.6%, and the Dow Jones Industrial Average by 1.3% [02:45].
• Volatility: The VIX index, a key measure of market volatility, has spiked by 20%, indicating heightened uncertainty [03:07].
• International Markets: European indices like London’s market are down by 1.2%, while Germany’s key indexes have fallen by 1.7%, with major automobile companies like VW, BMW, and Mercedes experiencing significant declines [03:50].

Currency and Commodity Shifts:

• The U.S. dollar has strengthened against the euro (up 1.1%), Mexican peso (up 2%), and Canadian loonie (now at 1.47 CAD per USD, the lowest in 22 years) [03:50].
• Gold prices have increased by 2.4% over the week, reflecting its status as a safe-haven asset amidst economic uncertainty [03:50].

4. The Gold Market Under Pressure

Mitchell Hartman explores the specific dynamics of the gold market in the context of the new tariffs, featuring insights from Jacob Kierkegaard of the Peterson Institute for International Economics and Rob Hayworth.

Gold Market Dynamics:

• Storage and Shipping: With the U.S. tariffs potentially affecting imported metals, there's a noticeable shift of gold storage from London to New York, leading to a shortage in London [03:55].
• Price Influences: While high U.S. interest rates and a strong dollar typically suppress gold prices, tariffs and global trade restrictions are encouraging central banks to diversify their reserves into gold, potentially driving prices higher [04:34].
• Future Projections: Analysts suggest that if global central banks continue to seek safety in gold amid trade tensions, prices could see further increases [04:44].

5. Government Efficiency and Security Concerns

Shifting focus, the episode addresses a controversial development involving Elon Musk and the U.S. Department of the Treasury’s payment system.

Key Developments:

• Access Granted: Elon Musk-led advisory group on government efficiency has been given access to the Treasury's Bureau of Fiscal Service, which manages nearly $6 trillion in federal payments [05:25].
• Oversight and Concerns: This unprecedented access has led to the resignation of the treasury official overseeing the division [06:26].
• Political Reactions: Democratic Senators Elizabeth Warren and Ron Wyden have expressed serious concerns, labeling the move as "concerning and dangerous" and a potential national security risk due to the sensitive data involved [06:50].
• Musk's Claims: Elon Musk has accused Treasury officials of approving fraudulent or illegal payments without evidence, aiming to curb government spending [06:34].

Expert Commentary: Kimberly Adams, Marketplace’s senior Washington correspondent, elucidates the critical role of the Bureau of Fiscal Service in the federal payment system and the potential risks introduced by Musk’s involvement [05:43]. The senators are particularly alarmed by Musk’s business ties, which they argue exacerbate the security risks associated with granting him access to sensitive financial systems [06:55].

6. Conclusion and Implications

As the episode wraps up, listeners are left with a comprehensive understanding of how President Trump’s tariff policies are poised to reshape the economic landscape. From immediate market reactions and potential GDP impacts to sector-specific price increases and the volatile gold market, the tariffs represent a significant shift with both national and global ramifications. Additionally, the involvement of high-profile figures like Elon Musk in government financial systems introduces new layers of complexity and concern regarding oversight and security.

Final Thoughts: The episode underscores the interconnectedness of international trade policies, market dynamics, and national security. As tariffs take effect and their consequences unfold, businesses, consumers, and policymakers will need to navigate an increasingly uncertain economic environment.

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This detailed summary captures the essence of the episode, highlighting key discussions and insights while providing notable quotes and timestamps for reference. Whether you're an avid listener or new to Marketplace Morning Report, this overview offers a clear and comprehensive understanding of the significant economic developments discussed.

Transcript

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[David Brancaccio]

Digest the promised tariffs that will begin within hours. I'm David Brancaccio in Los Angeles.

[Nivis Safa]

President Trump is set to have calls today with the leaders of Mexico and Canada after the administration imposed new tariffs on imports from America's two largest trading partners. 10% on Canadian energy imports, 25% on everything else from both countries.

[David Brancaccio]

Also under the economic emergency declaration, moving.

[Nivis Safa]

China tariffs up by another 10%. If this is a negotiating tactic, as some have suggested, there isn't much time.

[David Brancaccio]

The import taxes kick in just over.

[Nivis Safa]

17 hours from now, Midnight Eastern Marketplaces. NovaSafo has more.

[Kathy Bostjancik]

The tariffs President Trump announced affect a far bigger chunk of the US Economy than the ones he imposed during his first term.

[Rob Hayworth]

It was larger and more forceful than we were expecting in our baseline forecast.

[Kathy Bostjancik]

Kathy Bostjancik is chief economist at Nationwide Financial.

[Rob Hayworth]

So depending if they actually do get enacted and you see Canada and Mexico retaliate as they've indicated they would, that could shave about 2 full percentage points off of GDP growth.

[Kathy Bostjancik]

That means the economy could see almost no growth this year and could potentially even dip into recession, including job losses. Inflation could increase perhaps about 6/10 of a percentage point. And in some areas, prices would rise far more than in others.

[Rob Hayworth]

For instance, you know, for auto prices, we could see a jump of 10%.

[Kathy Bostjancik]

Grocery prices could rise. So could prices at the pump. A rise in lumber prices could increase. The cost of building homes. Smartphones and other electronics made in China could become more expensive. In general, analysts say the new tariffs are likely to cost American households about $1,000 to $1,200 a year. The president's order also removes an exemption which allowed packages worth less than $800 to come into the country tax free. That means those purchases from Temu and Shein and other low cost Chinese retailers will face import taxes for the first time. I'm Nivis Safa for Marketplace.

[Nivis Safa]

Let's check to see how this is playing out in financial markets. Stock index futures I see are down sharply, but not the widely held S&P 500 index is down 1.4%. The Nasdaq is down 1.6%. The Dow is down 1.3%, implying a.

[David Brancaccio]

Drop of something between five and 600.

[Nivis Safa]

Points at the open.

[David Brancaccio]

But that's not for another two and.

[Nivis Safa]

A half hours or so.

[David Brancaccio]

The VIX index of stock market volatility is up 20%.

[Nivis Safa]

London is down 1.2%. The key index in Germany is down 1.7% now with higher tariffs. Stock in German car Companies are down down 6% for VW 3.8% BMW 4% for Mercedes. The bond market is up with Treasuries seen as a safe haven during a turbulent time. The 10 year interest rate down at 4.54%. The dollar is up 1.1% to the euro, in part on the assumption that higher import taxes will bolster inflation. It's up 2% to the Mexican peso. And it costs 1.47 Canadian dollars to buy one US dollar now the lowest.

[David Brancaccio]

For the Canadian loonie in 22 years.

[Nivis Safa]

And and the price of gold is up 2.4% in just a week, although pretty steady this morning.

[David Brancaccio]

Marketplace's Mitchell Hartman has more London and.

[Mitchell Hartman]

New York are hubs of the global gold trade. Jacob Kierkegaard at the Peterson Institute for International Economics says New York has the futures market while most of the physical.

[Jacob Kierkegaard]

Gold is still stored with the bank.

[Mitchell Hartman]

Of England, the Financial Times reports so much gold has been shipped to New York recently, there's a shortage in London. Kierkegaard explains US Tariffs on imported metals could be coming soon. If you're a company that wants to hold gold as a safe haven or needs it for industrial uses, you have.

[Jacob Kierkegaard]

An incentive to move it inside the United States rather than in a vault in London.

[Mitchell Hartman]

This geographic shift doesn't explain why the price of gold is up. High US Interest rates and a strong dollar usually depress gold, says Rob Hayworth at U.S. bank.

[Unnamed Analyst]

But think about tariffs and sanctions and other restrictions on global trade. We could continue to see global central banks diversify their reserve holdings into gold.

[Mitchell Hartman]

Which could push the price of gold even higher. I'm Mitchell Hartman for Marketplace.

[Nivis Safa]

The advisory group on government efficiency headed by Tesla and SpaceX tycoon Elon Musk reportedly now has access to the financial plumbing of the US Department of Treasury, its payments system.

[David Brancaccio]

I'm joined by Marketplaces senior Washington correspondent Kimberly Adams. Morning, Kimberly.

[Kimberly Adams]

Good morning, David.

[David Brancaccio]

Tell me more about this payments system here.

[Kimberly Adams]

It's called the Bureau of Fiscal Service and like you mentioned, it's part of the Treasury Department it's sort of like accounts payable for the federal government. And it handles almost $6 trillion in payments for things like Social Security, tax refunds, federal grants payments, even payments to some contractors. So almost 90% of federal checks going out the door move through this system. So it affects millions of Americans and American businesses.

[David Brancaccio]

Now we have the New York Times and Politico reporting that this government efficiency.

[Nivis Safa]

Panel advising the administration, that's the one.

[David Brancaccio]

With Musk at the helm, now have access to this important system.

[Nivis Safa]

This appears to have prompted the resignation.

[David Brancaccio]

Of the treasury official who had been running that division.

[Nivis Safa]

Why is this system a priority for.

[David Brancaccio]

These government cost cutters?

[Kimberly Adams]

Elon Musk claimed on his Platform X that treasury officials were regularly approving fraudulent or illegal payments, although he didn't provide any evidence for this. And there is a system in place to prevent that from happening, but as part of a broader effort to just sort of rein in government spending in general.

[David Brancaccio]

And what are we hearing in response?

[Kimberly Adams]

Democratic Senators Elizabeth Warren and Ron Wyden, both ranking members on two Senate financial committees, have sent letters to treasury demanding more information about what's going on. They're calling these moves concerning and dangerous, as well as a risk to national security because this system contains a ton of data about individual Americans and businesses. They also flagged Elon Musk's business relationships with, arguing those connections create an even greater risk when he has access to data like this.

[David Brancaccio]

Marketplace's senior Washington correspondent, Kimberly Adams. Thank you.

[Kimberly Adams]

You're welcome, David.

[David Brancaccio]

From Los Angeles, I'm David Brancaccio. Marketplace Morning Report from apm, American Public Media.