Tariffs Are Paused. Uncertainty Isn't.

Summary

Radio Atlantic: Tariffs Are Paused. Uncertainty Isn't. Release Date: April 10, 2025

Hosts:

• Hanna Rosen
• Justin Wolfers, University of Michigan Economist

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1. Introduction to Economic Volatility

In this episode of Radio Atlantic, Hanna Rosen and economist Justin Wolfers delve into the recent tumultuous events in the U.S. economy, focusing on the abrupt pause in tariffs announced by President Donald Trump and the lingering uncertainty that continues to affect markets and economic confidence.

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2. Recent Economic Developments

Hanna Rosen opens the discussion by highlighting two major events from the week:

• Rapid Sell-Off of U.S. Bonds: Investors began rapidly selling U.S. bonds, a traditional safe haven, signaling diminishing trust in the U.S. economy.
• Trump's Tariff Announcement: President Trump announced a pause on tariffs, which initially sparked optimism but ultimately led to significant market volatility.

"In the morning, we woke up to the news that investors had started rapidly selling off U.S. bonds, which worried economists because U.S. bonds are the safe haven." — Hanna Rosen [01:44]

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3. Analysis of Tariffs and Trade Policy

Justin Wolfers provides a historical context, comparing Trump's recent actions to his first-term approach to NAFTA. He explains that while the administration claimed to reduce tariffs, the reality was a minimal change, leaving most tariffs unchanged and even maintaining high rates with key trading partners like China.

"So he caused a trade war with Canada in the first term and then came back with what we would say is a rebranded NAFTA. For all intents and purposes, it's exactly the same." — Justin Wolfers [04:05]

Wolfers emphasizes that despite the announcement, the tariff regime remains highly disruptive, with U.S. average tariffs now significantly higher than before, likening them to the Smoot-Hawley tariffs of the Great Depression.

"The American average tariff rate today will be 10 times higher than it was in January. It will be roughly as high, possibly higher than the Smoot Hawley tariffs during the Great Depression." — Justin Wolfers [05:47]

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4. Impact on Stock and Bond Markets

The hosts discuss the unexpected reaction of the stock market, which surged despite ongoing tariff uncertainties. Wolfers attributes this to two main shocks:

1. Tariff Increases: Initially causing market declines.
2. Tariff Pause: Leading to significant stock market gains, which erased trillions in value within a week.

"When you look at those numbers, they're terrible. They're all at recession levels." — Justin Wolfers [15:34]

Wolfers also explains the importance of the bond market, noting that rising bond yields indicate a lack of confidence in the U.S. as a safe investment.

"What happened over the past couple of days is, is bond yields. So interest rates spiked." — Justin Wolfers [09:56]

He underscores the gravity of the situation by comparing the current bond market turmoil to previous economic crises.

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5. Potential Recession and Stagflation

The conversation shifts to the broader economic implications, with Wolfers expressing concerns about an impending recession and the possibility of stagflation—a combination of stagnant economic growth and high inflation.

"The economy's in very good shape, fundamentally. So we're hitting whatever this cavalcade of bad news is with a lot of momentum. But the extent to which the President has undermined confidence is quite dramatic." — Justin Wolfers [14:44]

He explains that while hard economic data (like employment rates and GDP figures) remain strong, soft data (consumer confidence and investment plans) have plummeted, creating a precarious economic outlook.

"We have what economists call a split between the hard data and the soft data. Soft data is when you ask people, are you optimistic, do you plan to make investments? Do you think unemployment's going to rise or fall. And when you look at those numbers, they're terrible." — Justin Wolfers [15:34]

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6. Investor Advice and Future Outlook

Addressing listeners' concerns about investment strategies amid such volatility, Wolfers advises caution. He emphasizes that attempting to time the market is futile and highlights the high risks currently present.

"So coming in later this afternoon and saying, well, now that he's backing off the tariffs a bit, I should buy stocks. No, they were a good buy before anyone else knew. But as soon as anyone knew, they were no longer a good buy." — Justin Wolfers [17:44]

He suggests that for those uncomfortable with high-risk environments, placing money in low-interest savings accounts might be prudent. Conversely, he notes that high-risk periods often come with the potential for high rewards for those willing to endure the uncertainty.

"Now, if you have the stomach for it, you know, here's some good news. When risk is high, it's usually paired with high reward." — Justin Wolfers [18:48]

Finally, Wolfers warns of a potential vicious cycle where Trump’s unpredictable tariff policies erode market confidence, making future policy changes ineffective as markets no longer react as strongly.

"If what happens next time is Trump does something dumb, markets think he's going to react and undo it so they don't bother freaking out. If they don't bother freaking out, he's not gonna undo it." — Justin Wolfers [13:09]

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7. Conclusion

Hanna Rosen and Justin Wolfers conclude by acknowledging that while there has been a slight improvement since the previous day, the economic crisis remains unresolved and the situation continues to be precarious.

"It's a teeny, teeny bit better than it was a day ago, but we are definitely not out of crisis yet." — Hanna Rosen [20:43]

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Key Takeaways

• Tariff Policy: President Trump's tariff pause has not alleviated economic tensions; tariffs remain high, especially with China.
• Market Reactions: Significant volatility in both stock and bond markets reflects deep uncertainty and eroding confidence.
• Economic Outlook: The risk of recession and stagflation looms as soft economic indicators falter despite strong hard data.
• Investment Strategy: Caution is advised; market timing is unreliable, and high-risk investments carry substantial dangers.
• Future Risks: Continued unpredictability in trade policy may lead to ongoing economic instability.

---

Produced by: Janae West
Edited by: Claudina Baid
Engineered by: Rob Smercia

---

This summary provides a comprehensive overview of the key discussions and insights shared by Hanna Rosen and Justin Wolfers in the episode "Tariffs Are Paused. Uncertainty Isn't." It captures the essence of their analysis on the current economic climate, the implications of tariff policies, and the potential future challenges facing the U.S. economy.

Transcript

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[Hanna Rosen]

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[Justin Wolfers]

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[Hanna Rosen]

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[Justin Wolfers]

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[Hanna Rosen]

Was today real? Honestly, like, today just seemed like an unreal day.

[Justin Wolfers]

Truly, Was this week real?

[Hanna Rosen]

Was this week real? Exactly.

[Justin Wolfers]

What day's today, Hannah? It's Wednesday.

[Hanna Rosen]

It's only Wednesday.

[Justin Wolfers]

Okay, so in 11 minutes, we will have been at this for seven days in a row.

[Hanna Rosen]

Yeah. Yeah. What's this?

[Justin Wolfers]

The confused mumblings of an old man who didn't do very well in his college economics course.

[Hanna Rosen]

Are you talking about the President?

[Justin Wolfers]

I might be.

[Hanna Rosen]

Okay. In one single day this week. I'm talking about Wednesday. Yesterday, two extraordinary things happened. In the morning, we woke up to the news that investors had started rapidly selling off U.S. bonds, which worried economists because U.S. bonds are the safe haven. And it's a very bad sign for the US Economy if investors no longer trust the safe haven. And then midday, Donald Trump made the announcement that he was going to reverse course on tariffs. Sort of. We'll get into it.

[Justin Wolfers]

Well, I thought that people were jumping a little bit out of line. They were getting yippee. You know, they were getting a little bit yippie, a little bit afraid.

[Hanna Rosen]

Unlike these champions, which around lunchtime, caused the second extraordinary thing, the stock market surged, had one of its biggest single day jumps in history. What is happening? I'm Hanna Rosen. This is Radio Atlantic. We are living in a world in which the President makes decisions that have enormous global consequences and then unmakes them 24 hours later. So today, we are going to try and get a handle on all this volatility. Is it over? Are we still in it?

[Justin Wolfers]

Yep. Do we need to do levels or any of that magic.

[Hanna Rosen]

To help us, we have University of Michigan economist Justin Wolford.

[Justin Wolfers]

It's been crazy, but that's all of us, right?

[Hanna Rosen]

I mean, like. Okay, I'm just gonna tell you my experience of the day. It's Wednesday afternoon. That's when we're recording. I mean, I feel like, what happened today, for a lot of people who track the news, you go to lunch, you're worried about tariffs, you're worried about what's gonna happen. You come back from lunch, and it's like, Trump backs down, pauses tariff for 90 days. Is that what happened to you today?

[Justin Wolfers]

Yeah, actually, I was in my home office, and I suddenly heard this enormous belly laugh coming from downstairs. Your wife, my better half, Betsy Stevenson, is also an economics professor. She saw the humor in it, and it's kind of stunning. But we've seen this movie before, and that's what's so funny. This is what Trump did in the first term to nafta. The United States had a free trade agreement with Canada, basically, and Mexico. Basically, you'd had President Clinton and the leaders of Canada and Mexico get in the room and negotiate that there would be zero tariffs on everything. But each leader was allowed a couple of little asterisks because there are a few politically sensitive groups in each country. Trump comes along, rips the whole thing up, and says, I need a better deal. Now, just to be crystal clear, it's very hard to get tariffs below. They were effectively zero percent before. It's very hard to get them below zero percent. So he caused a trade war with Canada in the first term and then basically came back with what we would say is a rebranded nafta. For all intents and purposes, it's exactly the same. And he declares a win. What just happened? He launched us headlong into a trade war with every country on Earth. Now says, oh, they all want to negotiate. Now, here's the really important thing to understand, Hannah. Almost every country on Earth had very low tariffs as of last Tuesday, like 1 or 2%, because governments all around the world have been liberalizing trade for decades now. There really aren't many tariffs out there. That matters, because if the next act of this play is the President just threatens to blow the world up, and then everyone calls him and says, let's make a deal. The best they can do is restore back to where we were on Tuesday.

[Hanna Rosen]

So we've just gone around the world and come back to where we were? Is that what you're saying?

[Justin Wolfers]

I think that's the end game. That's not where we are right now.

[Hanna Rosen]

Yeah.

[Justin Wolfers]

So here I want to be crystal clear. Everyone saw the President's announcement. Oh, my goodness. He's getting rid of reciprocal tariffs, but he's not. For one of our most important trading partners, China. Tariffs are now up to 125%. And for every country around the world, they're 10%. Which means there's been no change for many countries. But some of the worst excesses of what he announced before have gone away. We're still in the midst of tariff mageddon and we're still in the midst of an incredibly disruptive tariff regime. The American average tariff rate today will be 10 times higher than it was in January. It will be roughly as high, possibly higher than the Smoot Hawley tariffs during the Great Depression. It will be 10 and sometimes 20 times higher than most of our trading partners. And the United States probably has no longer got the highest tariffs in the world, something we had this morning. But we will have the highest tariffs in the industrialised world. So among advanced economies, and it's not even close.

[Hanna Rosen]

Got it. So what you are saying, what I understand you to be saying, is crisis not averted. He reset our expectations in the course of that week to some absurd level and then lowered them back to what is still too dangerously high a level.

[Justin Wolfers]

Yes. Now you might then say, cause I know that you love to track financial markets minute by minute. If we only got rid of a quarter of the tariff, why did stocks soar on the news? And I think what's happened is there's been two sets of shocks over the last week. One shock is a shock to tariffs. They rose enormously. The second shock is we thought for most of the last seven days we'd learned how profoundly incompetent this administration was and that the President was willing to look down the barrel of a recession and say, let's just keep going, and that there were no adults in the White House. This was a rollout that was laughably awful from start to finish.

[Hanna Rosen]

Now, there was speculation that it was because of the bond market that he backed down. Can you explain what the bond market is and why it's important?

[Justin Wolfers]

Okay, so let me get to other speculations first because they may be bigger.

[Hanna Rosen]

Okay, go ahead.

[Justin Wolfers]

The first is the chances of a recession skyrocketed. We will look, still are looking straight down the barrel of a recession in 2025 that would wipe out the Republican House. I think that has a lot of people freaking out and they should, because recessions are really, really, really bad. Second thing you saw was every time Trump moved towards tariffs, stocks fell dramatically. Every time he backed off, they rose. He'd knocked off roughly $6 trillion from the value of the US stock market in a week. He was going at actually might be more. So it might be a trillion a day. So realize that when Elon Musk was saving us with Doge, he was like saving 1 billion here, 1 billion there. This was 1000 billion every day. So that is causing a lot of pain, particularly to the Republican donor class. And then you asked about the bond market, so things started to go crazy in bonds. So what is a bond? Well, when I go to the bank and put money in, the bank might not feel this way, but what I'm doing is lending money to the bank. It has my money for a while, it can use it, and it'll give it back to me when I want it back. That's how it works for you and I. But if you want to borrow money or lend money and you're a big corporation, what you do is to lend money to a corporation, you sell them bonds. And to borrow money, if you're a corporation, you buy bonds. And what a bond is, is you say, hey, can I have your money? And I'll give it back to you in 10 years with interest. U.S. government bonds. That's how we fund the government debt, typically regarded as the safest asset in the world, because the US Government is in charge of an amazing economy and we'd never screw things up.

[Hanna Rosen]

And safe is the important word here. Like an investment advisor would tell you, do you want to be safe? Do you want to rest easy? Safety. It's our safe space. It's our economic space.

[Justin Wolfers]

It's the only thing safer than money under the mattress.

[Hanna Rosen]

Yes, money. Right, right, right.

[Justin Wolfers]

So because it's safe, people are willing to lend money to the US Government at a low interest rate, and that actually saves all of us tons of money. Cause the US Government owns a lot of money. Just if you've ever seen your family mortgage and thought about what would it be if the interest rate changed a little, you'll see it makes a huge difference to your family's finances. That's the same for bond yields. So what happened over the past couple of days is, is bond yields. So interest rates spiked. What normally happens when the world's in chaos is the opposite, because everyone's worried, oh, my goodness, there's chaos. Let me go and buy the safe thing. Let me hide under the covers. So how do you make sense of all of this. This is essentially the rest of the world saying, if I want to be safe, I don't want to be associated with America.

[Hanna Rosen]

Right. So the volatility, such as it is already so far, has made America a less predictable place, Made the foreign investors.

[Justin Wolfers]

Appetite dip and domestic investors too.

[Hanna Rosen]

Yeah. Okay.

[Justin Wolfers]

Unless the bond market feel distant from listeners lives. We do. Just like your family pays on a mortgage, the federal government has to pay interest on its debt, and it's one of the biggest expenses in the federal budget. And so when the interest rate rises, we have to pay more, which means there's less money for roads and schools and tax cuts, if that's what it's real money.

[Hanna Rosen]

Yeah. So, Justin, everything you just said, the cycle of events you just described, actually could make one feel safer because it suggests that what seemed chaotic, unpredictable, capricious, is actually responding to real world inputs. So if I'm a business owner and I'm trying to make decisions about sourcing or investments or whatever, am I feeling like, oh, the future is predictable? The President actually does respond to changes in the market when it gets really serious.

[Justin Wolfers]

Right. So, one, you should feel a little bit more relieved than you felt this morning. But this morning, what we had was a madman raising tariffs so that we had the highest tariffs in the world, essentially cutting Americans off, imposing sanctions on Americans, cutting us off from the global economy, even as recession threats were rising and saying, I'm gonna stay the course. So the only thing you know, it's good that at some point the guy is persuadable. That is an enormous relief. It is terrible that we just had the week we had. It's awful that three quarters of the tariffs are still in place and the stock market is still well below where it was when he was elected. And it's not just that I care about your 401k, but that stock market is essentially a bet on the future of the American economy. And people are betting we're less healthy than we were a week ago and certainly less healthy than we were on election day. And there's one more thing I want to scare you about.

[Hanna Rosen]

Yeah.

[Justin Wolfers]

So here's the cycle from the first term. Trump does something dumb. Markets react. Trump listens. Markets go back to normal. We just saw that play out again this week. But if what happens next time is Trump does something dumb, markets think he's going to react and undo it so they don't bother freaking out. If they don't bother freaking out, he's not gonna undo it.

[Hanna Rosen]

Does anyone stand to gain from this kind of volatility. Like some, you know, he did tweet, this is a great time to buy. And some people speculated he was setting a sign to followers before juicing the market. Again, that's maybe paranoid. I don't know.

[Justin Wolfers]

No, it's not. It's before the announcement.

[Hanna Rosen]

Okay, so you don't think it's paranoid. You think it's corrupt.

[Justin Wolfers]

Face, this is saying you want to time the market. You watch me, you look at me, you listen to me. It would land anyone else in jail.

[Hanna Rosen]

After the break. How this might affect the chances of a recession for all of us or the thing economists fear, the stagflation. So we've been through a couple of recessions, near recessions. 2008, the pandemic. The words that economists are using, depression and stagflation. Why? What's the likelihood of those? How do you think about those?

[Justin Wolfers]

Great. So what we're worried about is a recession. None of us are quite sure how deep it might be. The good news for those looking for the silver lining is it's crystal clear. We've got the early data from the first quarter of the Trump administration and all the data from the last quarter of the Biden administration. It's crystal clear that the economy's in very good shape, fundamentally. So we're hitting whatever this cavalcade of bad news is with a lot of momentum. But the extent to which the President has undermined confidence is quite dramatic. What we have at the moment is what economists call a split between the hard data and the soft data. Soft data is when you ask people, are you optimistic, do you plan to make investments? Do you think unemployment's going to rise or fall? And when you look at those numbers, they're terrible. They're all at recession levels.

[Hanna Rosen]

That's because of everything you've talked about. Trust. People don't trust. It's unpredictability. Like, you can't make decisions if you're in a unpredictable environment.

[Justin Wolfers]

On January 1, there wasn't much to worry about. And on April 9, there's a lot to worry about.

[Hanna Rosen]

Got it. Okay, that makes sense. That's the soft numbers.

[Justin Wolfers]

And everyone has understood that.

[Hanna Rosen]

Got it.

[Justin Wolfers]

When you look at the hard numbers, like how many people have jobs, how much money they're spending, they're substantially stronger. They're actually quite good. Now they're also a little more dated. We get the soft numbers before the hard numbers. So the question is, you know, which of those two stories wins the day? So that's an ordinary run of the Mill recession. What we're worried about now is actually something called stagflation, which is if you like inflation and you like recessions, two great flavors together. We call it stagflation. Stag. Stagnating output, stagnating labor markets, flation inflation.

[Hanna Rosen]

So it's high unemployment and high inflation at the same time.

[Justin Wolfers]

Terrific, isn't it?

[Hanna Rosen]

And why is that? Every economist's worst nightmare. Why is that the worst thing?

[Justin Wolfers]

Well, do you, like, one bad thing at a time or two?

[Hanna Rosen]

Got it. It's just because it's the doubling of terrible outcomes, and it's hard to know how to control that. It's hard to know how to do that.

[Justin Wolfers]

It's very hard to know what to do, because for Jay Powell and the Fed, normally, if you've got unemployment, you lower interest rates, and if you've got inflation, you raise interest rates.

[Hanna Rosen]

Right, right, right.

[Justin Wolfers]

So go to bed at night thinking yourself, you're not running the Fed.

[Hanna Rosen]

Yeah, yeah, yeah, yeah. You wouldn't have any levers to pull. You wouldn't know what to do. So you're stuck.

[Justin Wolfers]

Yes.

[Hanna Rosen]

Okay, so we know what Americans are worried about. The investing advice is always wait it out. Like, just wait it out. Is that actually good advice? Like, are there any safe havens? If I were a smart economist, would I be doing something totally different than what the average American is being told to do?

[Justin Wolfers]

Well, fortunately, if you invest in my new crypto Coin. Justin Coin. Justin, I can guarantee you, you didn't.

[Hanna Rosen]

Even name it after Betsy. It's not even called Betsy Coin.

[Justin Wolfers]

You know, Trump did Trump Coin before he did Melania Coin.

[Hanna Rosen]

Okay, fair, fair, fair.

[Justin Wolfers]

So Betsy Coin's coming tomorrow for those who want the complete set.

[Hanna Rosen]

Awesome.

[Justin Wolfers]

Okay, so let me be clear about what I can say and what I can't. So I want to start with what I can't say. Realize people in financial markets are paid a lot of money to keep track of what's going on. What that means is all of the madness from earlier today is already priced in. So coming in later this afternoon and saying, well, now that he's backing off the tariffs a bit, I should buy stocks. No, they were a good buy before anyone else knew. But as soon as anyone knew, they were no longer a good buy. Right, so that's the source of the usual argument. Don't try to time the market. It's too hard. If someone tells you that they know which way the market's going, the right answer is to never talk to them again.

[Hanna Rosen]

Mm. They're a grifter so you don't know either? Nobody knows.

[Justin Wolfers]

I don't know either. What I do know is that we live in dangerous times. If you don't have the stomach for that, then you want to pull the money and put it, you know, in a low interest savings account. Now, should you have the stomach for it, you know, here's some good news. When risk is high, it's usually paired with high reward.

[Hanna Rosen]

Okay, a last thing. Let's say you're not in the stock market at all. Is there any downside to what's happening right now?

[Justin Wolfers]

Is there any downside? Yes.

[Hanna Rosen]

Yeah, you could be unemployed.

[Justin Wolfers]

The economy's on the cusp of recession currently. Betting markets say it's a 53% chance of recession this year. I don't care about the stock market based on it being rich people's wealth. But the stock market is two things. It's rich people's investments, and it's also a betting market on the future of the economy. So when stocks are down, that's telling you very, very smart people in very fancy suits running very complicated computer models, hoovering up all the world's data, are less optimistic about the future of American business.

[Hanna Rosen]

And that's going to trickle down to you, whoever you are, that is going.

[Justin Wolfers]

To income, your unemployment, the inflation rate, the interest rate you pay on and on. So that it's just that it's a signal of how the economy is going to affect your life.

[Hanna Rosen]

Yeah.

[Justin Wolfers]

Now, it's true that the stock market is not the economy. That's an old expression people use. So you shouldn't take what I said too far. But to the extent that the Trump tariffs are meant to have any positive effects on America, they're meant to boost American businesses. And then all the positive effects on you and I are downstream of that. So the fact that they have actually undermined the stock value of American businesses tells you that the overall effect of the Trump tariffs is going to be negative.

[Hanna Rosen]

Although Trump would say all the way downstream. Not yet, but you know. I know what you mean.

[Justin Wolfers]

You mean Trump would say that he understands the true value of American business and the stock market doesn't better than you do. Yeah, I guess two minutes ago I said if someone ever says that to you.

[Hanna Rosen]

Right, Exactly. Exactly. Okay, I'm gonna summarize this conversation. It's a teeny, teeny bit better than it was a day ago, but we are definitely not out of crisis yet. Is that fair?

[Justin Wolfers]

Spot on.

[Hanna Rosen]

Okay, thanks, Justin.

[Justin Wolfers]

I wish I had Happy New Zena.

[Hanna Rosen]

That's okay. This episode of Radio Atlantic was produced by Janae west and edited by Claudina Baid. It was engineered by Rob Smercia. Claudina Baid is the executive producer of Atlantic Audio and Andrea Valdez is our managing editor. Listeners, if you like what you hear on Radio Atlantic, remember you can see support our work and the work of all Atlantic journalists when you subscribe to The Atlantic at theatlantic.com podsub that's theatlantic.com p o d S U B I'm Hanna Rosen. Thank you for listening.

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