Tariffs Thrust U.S. Economy Into Uncertain Waters

Summary

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

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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.

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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.

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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."

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

Transcript

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[Luke Vargas]

President Trump ushers in a new era of protectionism as US Tariffs on China, Canada and Mexico kick in.

[Alex Frangos]

So 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.

[Luke Vargas]

Plus, Washington pauses all military aid to Ukraine. And after years of struggles, Walgreens closes in on a deal to go private. It's Tuesday, March 4th. I'm Luke Vargas for the Wall Street Journal, and here is the AM edition of what's news, the top headlines and business stories moving your world today. It wasn't a bluff. 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. Trump described the duties taken under his emergency authority as being imposed due to fentanyl smuggling over the US Border. And at a White House press conference, he described how he thought Mexico and Canada ought to respond.

[Melanie Jolie]

That'll start. So they're going to have to have a tariff. So what they have to do is build their car plants, frankly, and other things in the United States, in which case they have no tariffs. I would just say this as we.

[Luke Vargas]

Wait to see if those plans are forthcoming. Canada is responding in kind. Here was Foreign Minister Melanie Jolie.

[Melanie Jolie]

Lets be clear, if Trump is imposing tariffs, we're ready.

[Luke Vargas]

We are ready with $155 billion worth.

[Melanie Jolie]

Of tariffs and we're ready.

[Luke Vargas]

That works out to around US$107 billion. Mexico, meanwhile, has yet to respond, but markets aren't waiting to react as investors reckon with how substantial a trade fight is in store. And here to recap what is already a very busy trading day, I'm joined by Journal Finance editor for Europe, Alex Frangos. Alex, what reaction are we see various corners of the market to these tariffs. Has anything stood out to you?

[Alex Frangos]

Not so much surprised. But stocks are down. Obviously that happened late yesterday in the US and that's followed up in most parts of Asia and Europe. And 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 if they stay in place for a long time.

[Luke Vargas]

How safe are bonds? And is that the only safe haven that we can see?

[Alex Frangos]

Well, for right now, that's generally where investors turn in times like this, because a lot of people are fearing that the economy is going to slow down, and so that would end up with rate cuts eventually. Although it's a really confusing mix because tariffs are also inflationary. So 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.

[Luke Vargas]

We see the 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, March through through May, firms raising prices to make up for higher imports. I guess this is not too hypothetical. We've seen how this plays out.

[Alex Frangos]

It's not hypothetical, but it's also not really certain exactly how it will play out. And there were tariffs in the first Trump term. That was at a different time. Inflation was very low at the time, and it didn't really cause any additional inflation or not any worrying amount of inflation. So the other thing that is very difficult to predict is how companies and consumers are going to respond to tariffs. It's not just as simple as, okay, well, we're just going to import the same things we were importing and pay a lot more tariff. They'll look for substitutions. They'll look for bringing things in from third countries to try to keep the prices low.

[Luke Vargas]

We heard from the Canadian foreign minister there a minute ago about the country hitting back against the US with tariffs of its own, a strategy that's not really a surprise. We'd heard about that coming likely for weeks. China, meanwhile, also seems to have done what many were expecting, putting tariffs on U.S. agricultural exports. Corn, chicken, soy. Surprises there at all?

[Alex Frangos]

It's not so much surprises, but I think there was some uncertainty about how countries should respond. Basically, how do you convince Trump to take away the tariffs? If you respond, does that just make him angrier? If you don't respond, do you look weak? So people are very attuned to, you know, how big are these tariffs? How strong are they? Are they really trying to hit back at the places in the US where there's a lot of Trump support. So that's what the Chinese did last time going after, especially agricultural areas that were very strong for Trump. So it's not a surprise. But also the details really matter.

[Luke Vargas]

And finally, what market reactions should we be keeping an eye out for? Any corners of the market you'll be watching closely?

[Alex Frangos]

Yeah, I mean, all of them. There's the commodity complex of just stuff that American companies need to make things. So the US Counts on Canada, you know, second biggest country in the world with lots of forests for a quarter of its lumber. So if you're, if you're a homebuilder or if you're just someone at home building your deck or something, there's a pretty good chance that that lumber comes from Canada. And then there's the kind of 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?

[Luke Vargas]

That was Journal finance editor for Europe, Alex Frangos. Alex, thank you so much.

[Alex Frangos]

Thank you.

[Luke Vargas]

And for more real time coverage of the market reaction to Trump's tariffs, check out the WSJ's live blog, which we've left a link to in our show. Coming up, the EU Crafts an urgent plan to encourage more defense spending after the US Hits pause on aid to Ukraine. That and a look at what else is moving markets today after the break. 150 countries, more than a trillion dollars for dams, bridges, railways. China's building influence.

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[Luke Vargas]

So what is Beijing getting? Belt and road.

[Alex Frangos]

You're going to find ways to cooperate economically that help China advance its interests.

[Luke Vargas]

And what's the US Doing about it? The Western world has come up with only partial answers. Check out Building Influence Sundays on the Wall Street Journal's what's News podcast. 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. That's according to a White House official who said Trump felt the need to show he was serious about getting Ukraine to the negotiating table after the two leaders public clash last week. Here was Vice President J.D. vance on Fox News Channel's Hannity. 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. The Ukrainians can't fight forever. So let's bring this thing to a peaceful settlement. It's not clear what Washington wants from Kyiv to resume arms deliveries. Nor is it certain that Zelenskyy signing a rare minerals deal sought by the Trump administration would be enough. Analysts say the U.S. weapons cutoff will leave Ukraine less able to withstand Russian attacks, with current and former Western officials adding that Ukraine has enough weapons to keep fighting Russia at its current pace until the middle of the year. Meanwhile, EU chief Ursula von der Leyen is offering member states greater legal flexibility in their budgets so they can urgently boost defense investments, she said the proposal, which was announced just hours after the US military aid freeze, could generate some $840 billion in new spending should countries make use of it. We are exclusively reporting that 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, according familiar with the matter. The sides are aiming to complete the deal as soon as Thursday and are discussing a price of between $11.30 and $11.40 a share in cash. Walgreens market value peaked above $100 billion in 2015 but has since shrunk as it faces a margin squeeze on its core prescription business after it doubled down on retail pharmacy, while rival CVS Health diversified into insurance and pharmacy benefits. Walgreens shares, which are currently trading just below DOL dollars, are rising off hours and 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 and continuing through September of next year. The move ends a long push by the group to prop up prices by limiting supply and comes after President Trump urged them to open the spigots back in January. And that's it for what's news for this Tuesday morning. Additional sound in this episode was from Reuters. Today's show was produced Kate Bulipant with supervising producer Christina Rocca and I'm Luke Vargas for the Wall Street Journal. We will be back tonight with a new show and until then, thanks for listening.