WSJ What’s News: Tariffs Thrust U.S. Economy Into Uncertain Waters

Release Date: March 4, 2025
Host: Luke Vargas
Produced by: The Wall Street Journal

Introduction

In the March 4, 2025, episode of WSJ What’s News, host Luke Vargas delves into the immediate and far-reaching impacts of President Donald Trump's newly imposed tariffs on key trading partners, the ensuing international responses, and the broader economic implications. The episode also touches on significant developments in U.S. military aid to Ukraine, corporate maneuvers in the pharmaceutical sector, and fluctuations in global oil markets.

U.S. Tariffs on China, Canada, and Mexico

Implementation and Rationale

At the outset, Vargas reports that President Trump enacted a series of tariffs aimed at reshaping U.S. trade dynamics. Specifically, a 25% tariff on goods from Mexico and Canada and a second round of 10% tariffs on imports from China took effect just after midnight. These measures are presented as a staunch move against what Trump identifies as fentanyl smuggling across the U.S. border.

Luke Vargas (00:52): "President Trump's 25% U.S. tariffs on goods from Mexico and Canada took effect just after midnight this morning, along with a second round of 10% tariffs on imports from China."

International Responses

Canada and Mexico quickly retaliated, signaling a potentially protracted trade conflict. Canadian Foreign Minister Melanie Jolie emphasized readiness to impose retaliatory tariffs, with Canada announcing tariffs worth approximately $155 billion, translating to around $107 billion USD. Mexico, however, had yet to respond at the time of the broadcast.

Melanie Jolie (02:01): "Let's be clear, if Trump is imposing tariffs, we're ready."

Luke Vargas (02:07): "We are ready with $155 billion worth."

Market Reactions and Economic Implications

Vargas brings in Alex Frangos, Journal Finance Editor for Europe, to analyze market responses. The announcement of tariffs led to an immediate downturn in stock markets across the U.S., Asia, and Europe as investors sought the relative safety of government bonds amidst heightened economic uncertainty.

Alex Frangos (02:37): "Stocks are down... investors are sheltering in the safety of government bonds because there's a great deal of uncertainty about how the economy is going to absorb the impact of these tariffs."

Risk of Stagflation

Frangos highlights the dual threat posed by the tariffs: rising inflation and a slowing economy, leading to a feared scenario of stagflation—an economic condition marked by stagnant growth and high inflation.

Alex Frangos (03:01): "The big fear here is that you get more inflation, which is not what American consumers want, and you get a slowing economy. So something more along the lines of stagflation, which is everyone's least favorite situation."

Economic Expert Insight

Michael Feroli, Chief U.S. Economist at JPMorgan Chase, warns that the persistence of tariffs could escalate inflation from March through May as firms raise prices to offset higher import costs. However, Frangos notes that the actual impact remains uncertain, drawing parallels to the first Trump term when similar tariffs did not significantly spike inflation due to lower baseline levels.

Luke Vargas (03:27): "Chief US economist at JPMorgan Chase, Michael Feroli, overnight warning that if tariffs remain in effect, they could push up inflation in the coming months..."

Alex Frangos (03:44): "It's not hypothetical... it's also not really certain exactly how it will play out."

Global Trade Dynamics and Strategic Responses

The episode explores how other nations, particularly China, are maneuvering in response to U.S. tariffs. China has imposed tariffs on U.S. agricultural exports, targeting sectors like corn, chicken, and soy—industries that are politically significant in Trump-supporting regions.

Alex Frangos (04:39): "China, meanwhile, also seems to have done what many were expecting, putting tariffs on U.S. agricultural exports. Corn, chicken, soy."

Frangos explains that countries are strategically targeting regions in the U.S. where Trump has substantial support to maximize political pressure.

Impact on Various Market Sectors

Frangos identifies several market sectors to monitor in the wake of the tariffs:

• Commodities: Particularly lumber from Canada, which is vital for industries like homebuilding.

• Stock and Bond Markets: Ongoing volatility as investors assess the long-term economic impacts.

• Currency Markets: Potential fluctuations as the U.S. economy grapples with trade tensions.

Alex Frangos (05:20): "There's the commodity complex... the stock market, bond market, currency market impact, which we're starting to see in bigger moves in the last 24 hours as investors assess is this really going to hit the economy?"

U.S. Military Aid to Ukraine

Transitioning from economic issues, Vargas discusses a significant shift in U.S. foreign policy. The Trump administration has paused all military aid to Kyiv, contingent upon President Zelenskyy's commitment to peace negotiations with Russia.

Luke Vargas (06:35): "The U.S. will pause all military aid to Kyiv until President Trump determines that Ukrainian President Volodymyr Zelensky is making a good faith effort to peace negotiations with Russia."

Vice President J.D. Vance echoed this stance, emphasizing the need for a sustainable and peaceful settlement.

Vice President J.D. Vance (06:35): "The president is actually taking a much more realistic perspective and saying this can't go on forever. We can't fund this thing forever."

European Union's Defense Spending Plan

In response to the U.S. halting aid, EU Chief Ursula von der Leyen announced a plan to encourage member states to increase their defense budgets, potentially generating an additional $840 billion in spending. This move aims to bolster European defense capabilities amidst shifting global alliances.

Ursula von der Leyen (06:42): "Let's encourage more defense spending... could generate some $840 billion in new spending."

Corporate Developments: Walgreens Goes Private

The episode also covers a major corporate development: Walgreens Boots Alliance is nearing a privatization deal with private equity firm Sycamore Partners for approximately $10 billion. This move reflects Walgreens' struggles with a shrinking market value and challenges in its core prescription business, contrasting with competitor CVS Health's successful diversification.

Luke Vargas (06:31): "Walgreens Boots alliance is closing in on a deal with private equity firm Sycamore Partners that would take the struggling drugstore chain private for around $10 billion."

Global Oil Market Dynamics

Finally, Vargas touches on the oil market, noting that OPEC, led by Saudi Arabia and Russia, plans to increase production starting the following month, reversing a long-term strategy to stabilize prices through supply limitations. This decision aligns with President Trump's earlier urging of OPEC to augment oil supply.

Luke Vargas (06:35): "Oil prices are down after the Saudi and Russian led group of producer countries known as OPEC, said it would ramp up production starting next month..."

Conclusion

The episode of WSJ What’s News provides a comprehensive overview of the immediate ramifications of President Trump's tariff policies, the complex international responses, and the broader economic and geopolitical shifts underway. From market volatility and potential stagflation to strategic defense spending in the EU and significant corporate transactions, the episode underscores the interconnectedness of global economics and politics in shaping the current landscape.

For real-time updates on market reactions and ongoing developments, listeners are directed to the Wall Street Journal's live blog and upcoming What’s News in Markets wrap-up segments.

Notable Quotes:

• Luke Vargas (00:52): "President Trump's 25% U.S. tariffs on goods from Mexico and Canada took effect just after midnight this morning, along with a second round of 10% tariffs on imports from China."

• Melanie Jolie (02:01): "Let's be clear, if Trump is imposing tariffs, we're ready."

• Alex Frangos (03:01): "The big fear here is that you get more inflation... and you get a slowing economy. So something more along the lines of stagflation, which is everyone's least favorite situation."

• Alex Frangos (05:20): "There's the commodity complex... the stock market, bond market, currency market impact, which we're starting to see in bigger moves..."

• Vice President J.D. Vance (06:35): "We can't fund this thing forever. We can't fund this thing forever."

For more detailed coverage and continuous updates, visit the Wall Street Journal's live blog linked in the show notes.