Radio Atlantic: Tariffs Are Paused. Uncertainty Isn't. Release Date: April 10, 2025
Hosts:
- Hanna Rosen
- Justin Wolfers, University of Michigan Economist
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.
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]
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]
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:
- Tariff Increases: Initially causing market declines.
- 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.
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]
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]
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]
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.