Banks Warn of Risk to U.S. Economy Because of Tariffs

Summary

WSJ What’s News: Episode Summary – “Banks Warn of Risk to U.S. Economy Because of Tariffs”

Release Date: April 11, 2025
Host: Alex Osola
Producer: Pierre Bienname and Anthony Banci

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1. Introduction

In this episode of WSJ What’s News, host Alex Osola delves into the mounting concerns surrounding the U.S. economy amidst President Trump's tariff policies. The discussion highlights declining consumer sentiment, rising inflation expectations, the precarious stance of banks, and the disproportionate impact of tariffs on small businesses. Additionally, the episode touches upon Elon Musk's evolving relationship with Trump and its implications for government efficiency and corporate leadership.

2. US Economy Strain Indicators

The episode opens with alarming statistics indicating fresh signs of economic strain in the United States:

• Consumer Sentiment Plummets: The University of Michigan survey revealed a sharp decline in consumer sentiment, dropping to 50.8 in April from 57 last month[^00:56]. This marks one of the weakest readings in decades, signaling heightened recession fears among Americans.

• Rising Unemployment and Inflation Expectations: The share of Americans anticipating an increase in unemployment within the next year has surged to its highest level since 2009[^00:56]. Concurrently, inflation expectations have reached their peak since 1981, reflecting deep-seated economic uncertainty.

3. Banks' Warning on Tariffs and Economic Volatility

Jonathan Weil, the Wall Street Journal’s street columnist, provides insights into how banks are navigating the turbulent economic landscape influenced by Trump's tariff policies.

• Monitoring Financial Health: Banks are closely watching indicators such as borrower defaults on credit cards and loans, as well as trends in mergers and acquisitions. Weil notes, “They’re expecting a lot more volatility that has a lot of trade-offs that can be really good for if you run a trading desk. Not so good if the volatility goes so berserk that nobody wants to trade anything anymore”[^02:06].

• Cautious Financial Outlook: While investment banks like Morgan Stanley maintain a bullish stance, traditional banks such as Wells Fargo and J.P. Morgan have become more cautious. Both J.P. Morgan and Morgan Stanley have boosted provisions for possible credit losses, preparing for potential defaults from consumers and businesses unable to repay loans[^02:53].

• Uncertain Forecasts: Weil emphasizes the uncertainty banks face, stating, “We don't know”[^03:03], reflecting the broader economic unpredictability affecting financial institutions.

4. Wall Street Performance Amid Volatility

Despite the grim economic forecasts, major Wall Street banks reported robust first-quarter performances:

• Equities Trading Revenue Surge: J.P. Morgan achieved a record $3.8 billion in equities trading revenue, while Morgan Stanley saw a 45% increase, reaching over $4 billion[^03:53].

• Stock Market Resilience: U.S. stocks demonstrated resilience, with the Dow Jones Industrial Average rising by 1.6%, the S&P 500 by 1.8%, and the Nasdaq by approximately 2% despite recession warnings[^04:21].

5. Impact of Tariffs on Small US Businesses

Ruth Simon, a senior special writer at WSJ, discusses the disproportionate impact of Trump's tariffs on small and mid-sized businesses.

• Economic Vulnerability: Small businesses, which account for roughly $868 billion, or 1/3 of annual U.S. imports, are particularly vulnerable due to smaller cash reserves, thinner profit margins, and less diversified operations[^06:13].

• Operational Struggles: These businesses are "scrambling" to adapt, often forced to pass on price increases to customers while grappling with uncertainties about which tariffs will persist[^06:49]. This has led to reduced order volumes, as customers become cautious about spending[^07:14].

Simon summarizes, “They operate with smaller cash cushions. They typically have thinner profit margins. They’re less diversified both in terms of the goods they offer and where those products are made”[^06:13].

6. Analysis of Trump's Tariff Promises

Lauren Weber, covering workplace issues and employment for the Journal, evaluates the efficacy of Trump's tariffs in revitalizing American manufacturing.

• Historical Context: Weber asserts that tariffs historically have not led to a manufacturing renaissance. During Trump's first term, the imposition of tariffs, especially on China, did not result in job growth within manufacturing but instead led to significant losses in the agricultural sector due to retaliatory tariffs[^07:40].

• Challenges in Job Creation: The anticipated boom in manufacturing jobs has not materialized, primarily because tariffs have not spurred the creation of new jobs as promised.

• Shifts in Manufacturing Operations: Some sectors, like pharmaceuticals, are seeing a partial return of production to the U.S. However, many of these shifts were likely in progress before the implementation of tariffs, driven by the need for more resilient supply chains post-pandemic[^08:15].

• Labor Shortages: The U.S. faces significant labor shortages in manufacturing, exacerbated by the reliance on immigrant workers—a trend becoming harder to sustain amid stricter border controls[^08:57].

• Automation as a Solution: To mitigate labor shortages, companies are increasingly turning to automation, reducing the need for a large workforce but also limiting job creation[^09:42].

Weber concludes, “We don't have enough workers already”[^08:15], highlighting the inherent challenges in fulfilling Trump's promises through tariffs.

7. Elon Musk's Rift with Trump Over Trade Agenda

The episode also explores the strained relationship between Elon Musk and President Trump, shedding light on internal government dynamics and corporate implications.

• Criticism of Trade Policies: Musk has publicly criticized Trump's trade agenda, labeling Peter Navarro, the president's top trade advisor, as a "moron"[^10:20].

• Government Spending Concerns: A Wall Street Journal analysis revealed that despite Musk's efforts to cut costs as the head of the Department of Government Efficiency, federal spending under Trump has exceeded that of the same period under Joe Biden[^10:24].

• Potential Departure: Musk appears to be stepping back from his government role, potentially focusing more on his companies like Tesla and SpaceX. This move is seen as favorable by investors who prefer Musk dedicating his time to his business ventures rather than governmental duties[^10:20].

Musk himself noted, “It is clear that the White House and Musk seem to be signaling that when that comes to an end, he's going to take a step back”[^10:58].

8. Correction Notice on Tariffs

The episode includes an important correction regarding the current tariff rates:

• Tariff Rate Update: The U.S. tariffs on China were initially reported as 150% but have been corrected to 145%[^10:20].

9. Conclusion and Upcoming Topics

Alex Osola wraps up the episode by previewing upcoming content:

• Bonus Episode: An in-depth analysis on the implications of tariffs for stock and bond markets.

• Future Episodes:

  • Saturday: “What’s News in Markets Wrap-Up”
  • Sunday: A deep dive into America's nuclear umbrella and global nuclear deterrence strategies.

The episode concludes with acknowledgments to the production team and a reminder of the next show’s schedule.

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Notable Quotes with Timestamps

• Jonathan Weil on Volatility: “They’re expecting a lot more volatility that has a lot of trade-offs that can be really good for if you run a trading desk. Not so good if the volatility goes so berserk that nobody wants to trade anything anymore” [02:06].

• Ruth Simon on Small Businesses: “They operate with smaller cash cushions. They typically have thinner profit margins. They’re less diversified both in terms of the goods they offer and where those products are made” [06:13].

• Lauren Weber on Tariffs and Jobs: “We don't have enough workers already” [08:15].

• Elon Musk on Government Role: “It is clear that the White House and Musk seem to be signaling that when that comes to an end, he's going to take a step back” [10:58].

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Key Takeaways

• Economic Uncertainty: The U.S. economy is facing significant strain, with declining consumer confidence and rising fears of recession and inflation.

• Banks’ Vigilance: Financial institutions are cautiously navigating increased economic volatility, adjusting their financial provisions in response to uncertain economic forecasts.

• Small Business Struggles: Tariffs imposed by the Trump administration disproportionately affect small and mid-sized businesses, threatening their profitability and operational stability.

• Manufacturing Reality: Contrary to presidential promises, tariffs have not revitalized American manufacturing, with challenges such as labor shortages and increased automation limiting job growth.

• Corporate-Government Tensions: High-profile figures like Elon Musk are distancing themselves from government roles, highlighting tensions within Trump's administration and its trade policies.

This comprehensive summary encapsulates the critical discussions and insights presented in the WSJ What’s News episode, providing a clear understanding for listeners and non-listeners alike.

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[^00:56]: Alex Osola discussing economic indicators
[^02:06]: Jonathan Weil on bank volatility
[^02:53]: Discussion on banks' financial outlook
[^03:03]: Weil on economic uncertainty
[^03:53]: Wall Street performance
[^06:13]: Ruth Simon on small businesses
[^06:49]: Ruth Simon on tariffs' impact
[^07:14]: Ruth Simon on order volumes
[^07:40]: Lauren Weber on tariffs and job growth
[^08:15]: Lauren Weber on labor shortages
[^08:57]: Lauren Weber on automation
[^09:42]: Lauren Weber on sustainable solutions
[^10:20]: Elon Musk’s government role
[^10:58]: Elon Musk’s departure
[^10:20]: Correction on tariff rates

Transcript

[Ryan Reynolds]

Ryan Reynolds here from Mint Mobile with a message for everyone paying big wireless way too much. Please, for the love of everything good in this world, stop with Mint. You can get premium wireless for just $15 a month. Of course, if you enjoy overpaying. No judgments. But that's weird. Okay, one judgment anyway. Give it a [e-mail] Switch upfront payment.

[Alex Osola]

Of $45 for three month plan equivalent to $15 per month required intro rate first three months only, then full price plan options available. Taxes and fees extra. See full [e-mail] US consumer sentiment tanks and inflation expectations rise to their highest in more than 40 years. Plus Wall street sounds the alarm for economic volatility ahead because of President Trump's tariff policy. And small businesses might end up as the biggest losers of Trump's trade war.

[Ruth Simon]

It's like every day they wake up and it's a new reality that they're trying to adjust to.

[Alex Osola]

It's Friday, April 11th. I'm Alex Osola for the Wall Street Journal. This is the PM Ed. What's news, the top headlines and business stories that move the world today. The US Economy showed fresh signs of strain today. Consumer sentiment plunged further this month as recession fears built. The University of Michigan survey, a closely watched index of consumer sentiment, nosedived to 50.8 in April from 57 last month. That was much lower than economists expected and is one of the weakest readings in the past decades. The share of Americans expecting unemployment to rise in the year ahead increased to the highest since 2009, and inflation expectations in the year ahead hit their highest rate since 1981. That uncertainty is hitting Wall street, too. In earnings calls today, executives warned that President Trump's tariffs were sending the U.S. economy into the unknown and that the uncertainty was already hurting consumers and companies alike. For more on how banks are gauging what's ahead, I'm joined now by Hurd on the street columnist Jonathan Weil. Jonathan, what kinds of information are banks going to be keeping an eye on to get a sense of where things are headed?

[Jonathan Weil]

The things they're going to be monitoring are the usual things banks monitor. Are borrowers more likely to draw to a default on their credit cards on their loans? What's going to be happening to mergers and acquisitions and deal volumes? They're explicitly saying that they think that those will be going down. They're expecting a lot more volatility that has a lot of trade offs that can be really good for if you run a trading desk. Not so good if the volatility goes so berserk that nobody wants to trade anything anymore.

[Alex Osola]

And what are these banks expecting for their own finances in the next quarter?

[Jonathan Weil]

Well, the guidance that they have given is much more cautious than it was, say three months ago, Morgan Stanley today, they're generally bullish. That's an investment bank. It's a different type of business model than Wells Fargo or J.P. morgan.

[Alex Osola]

J.P. morgan and Morgan Stanley said they boosted provisions for possible credit losses, as could consumers and businesses may be unable to pay their loans. How significant is that?

[Jonathan Weil]

One of the things that JP Morgan said their CFO in their earnings call today said the way these things are all about mathematical models, it's not just looking at a loan to see if the particular loan is more or less likely to default. They said that they haven't seen it at least through the first quarter, hadn't seen any deterioration in the credit quality, broadly speaking, of their loan book. So we've seen some uptick in the credit losses at some of these banks. But the really big move if things went haywire would be showing up in the second quarter. And the answer they get about the outlook isn't necessarily very satisfying because they're in the same boat that we are. They have much more data that they can look at, but the conclusion is the same. We don't know.

[Alex Osola]

All right. I guess we'll have to wait and see then. That was heard on the Street Columnist Jonathan Weil. Thank you, Jonathan.

[Jonathan Weil]

Thank you.

[Alex Osola]

Despite that cloudy future outlook, the volatility wasn't all bad for Wall Street. Big banks reported a pretty good first quarter today. Trading desks racked up revenue as clients looked to exit or buy new investments during earlier market swings, gains that likely got even bigger in the past week for the banks. In the first quarter of the year, JP Morgan brought in a record $3.8 billion in equities trading revenue. At Morgan Stanley, equities revenue was up 45% to more than $4 billion.

[Elon Musk]

Foreign.

[Alex Osola]

Recession warnings didn't stop U.S. stocks from ending one of their most tumultuous weeks in years on an upswing. The dow rose about 1.6%, the S&P 500 notched gains of roughly 1.8%, and the Nasdaq closed about 2% higher. For a better understanding of what tariffs mean for the stock and bond markets, you can listen to a bonus episode of WSJ's take on the Week coming out today. And the regular episode of Take on the Week will be out on Sunday. Chris Kraus, a managing director and portfolio manager at PIMCO one of the world's largest bond managers, will join the podcast with a pulse check of consumer health coming up. Small companies account for 1/3 of US imports. What happens if they can't absorb the higher costs from Trump's tariffs? That's after the break. McDonald's meets the Minecraft universe with one of six collectibles and your choice of a Big Mac or 10 piece McNuggets with spicy nether Flame sauce. Now available with a Minecraft movie meal at participating McDonald's.

[Jonathan Weil]

For a limited time, a Minecraft movie only in theaters.

[Alex Osola]

Businesses of all sizes are struggling with President Trump's new tariff regiment, but small US Businesses are looking to be the biggest losers. According to the Census Bureau, small and mid sized Companies account for $868 billion, or roughly 1/3 of annual US imports. And though they're much smaller than global giants like Apple and Nike, these businesses also rely on overseas factories and goods that now carry steep tariffs which threaten their bottom line. WSJ senior special writer Ruth Simon joins me now with more. Ruth, why do tariffs affect small businesses more than larger businesses?

[Ruth Simon]

There are a whole bunch of reasons. They operate with smaller cash cushions. They typically have thinner profit margins. They're less diversified both in terms of the goods they offer and where those products are made. And they just don't have the economic muscle of big companies to try to push back hard and get their suppliers to accept some of those tariff increases to negotiate for better deals. They also have fewer people just to deal with all these issues.

[Alex Osola]

So for companies that have imports that are affected by these tariffs, what are they doing about it?

[Ruth Simon]

They're scrambling. Some of them will have to pass on price increases to their customers, but they're struggling to figure out what those tariffs are and what's going to stick and what isn't. And so it's hard for them to make any big moves. Some small businesses I've talked to say their order volume has softened because the companies that are their customers are nervous about spending money.

[Alex Osola]

That was WSJ senior special writer Ruth Simon. Thank you, Ruth.

[Ruth Simon]

It's a pleasure.

[Alex Osola]

President Trump has promised that tariffs would lead to a renaissance in American manufacturing, that they'll bring good paying jobs to U.S. communities. I'm joined now by Lauren Weber, who covers workplace issues and employment for the Journal. Lauren, do tariffs actually do that?

[Lauren Weber]

So history tells us no. And for that we can look at Trump's first term where he also imposed tariffs on China and some other countries. Manufacturing jobs did not grow and we actually lost jobs that Time around, mainly because other countries put on retaliatory tariffs largely on agricultural products. So we lost a lot of agricultural jobs. Those were partially offset by subsidies that the government paid to farmers to try to keep people employed. But no, manufacturing. Manufacturing jobs were not created.

[Alex Osola]

Are there certain sectors that are potentially more likely to move their operations to.

[Lauren Weber]

The U.S. yeah, we've already seen some announcements that pharmaceutical makers are bringing some production back to the US Products that are a little bit less complicated than, let's say, a car or an iPhone. We will see some of that return. Now, it's possible some of those plans might have been in process long before tariffs were announced, mainly because the pandemic was such a wake up call to companies. They needed to have supply chains where goods and raw materials would be more available closer to the United States.

[Alex Osola]

Like you mentioned, a number of companies have already committed to building new factories in the US does the US have enough workers and workers with the right skills to staff those factories?

[Lauren Weber]

Well, this is the rub. And this is one of the confusing things about this plan. We already have labor shortages for manufacturing jobs, and the jobs are more complex than they used to be. So you actually have to have more advanced skills. Often they involve some amount of computer knowledge or technical skills. So the answer is no, we don't have enough workers already. Complicating that even further is the fact that manufacturers in the US have long relied on an immigrant workforce. That's also becoming more challenging as border security has ramped up. Fewer immigrants are coming into this country. Employers have fewer workers to hire from.

[Alex Osola]

So what can companies do about this then?

[Lauren Weber]

In many ways, the solution is something that's been going on for decades for all kinds of reasons, and that is automation. So the kinds of factories that are being built or refurbished in the US These days have a lot more automation than the ones that left this country in the 1970s, 1980s, 90s, when outsourcing was a big trend. What that means is the factories need fewer workers than they would have in the past.

[Alex Osola]

That was WSJ reporter Lauren Weber. Thank you, Lauren.

[Lauren Weber]

Thanks for having me.

[Alex Osola]

After a stint as Trump's first buddy, Elon Musk seems to be developing a rift with the president. In recent days, Musk has made veiled criticisms of Trump's trade agenda and called Peter Navarro, the president's top trade advisor, a moron. A Wall Street Journal analysis found that despite Musk's cost cutting efforts as the head of the Department of Government Efficiency, the federal government is spending more under President Trump so far than it did in the same period under Joe Biden. Trump has said that Musk will lead the administration, quote, in a couple of months. And as Journal columnist Tim Higgins told our Tech News Briefing podcast, Musk's departure would be welcome news to investors in Musk's companies.

[Elon Musk]

There is clearly an off ramp being developed for Musk to maybe dial back some of his involvement at the White House. He is a special government employee. That is a 130 day window of time. It is clear that the White House and Musk seem to be signaling that when that comes to an end, he's going to take a step back. He has many companies to run. Tesla is facing its own challenges and Musk has been spending a lot of time at the White House complex the last few months and investors of his companies would probably like to see him spend some of that time in Austin where Tesla is headquartered, or in south Texas where SpaceX has its launch facility.

[Alex Osola]

For more from Tim, listen to today's episode of Tech News Briefing and we'll leave a link in the show notes for that article about government spending and Doge's efforts. Before we go, heads up. We made a correction to this morning's edition of the show. It originally made a reference to 150% tariffs on China, but as of this morning US tariffs on China stood at 145%. And that's what's news for this week. Tomorrow you can look out for our weekly markets wrap up. What's news in markets? Then on Sunday we'll be looking at America's nuclear umbrella, how countries in Europe and elsewhere aren't sure if the US Will offer enough protection and how they might develop their own nuclear deterrence. That's in what's New Sunday and we'll be back with our regular show on Monday morning. Today's show was produced by Pierre Bienname and Anthony Banci with supervising producer Michael Kosmides. Michael Lavalle wrote our theme music, Aisha El Musleam is our development producer, Scott Salloway and Chris Zinsley are our deputy editors and Falana Patterson is the Wall Street Journal's head of news Audio. I'm Alex Osola. Thanks for.