This week we talk about tariffs, consumer confidence, and trade wars.

We also discuss inflation, GDP, and uncertainty.

Recommended Book: A Brief History of Intelligence by Max S. Bennett

Transcript

On January 20, 2025, mere hours after being sworn into his second term in office as President of the United States, Donald Trump announced new 25% tariffs on most incoming goods from Canada and Mexico, accusing the two allies of failing to halt the flow of drugs and illegal migrants into the US. These tariffs would go into effect on February 1, he said, and they would be in addition to existing tariffs that were already in effect for specific import categories.

On that same day, he also speculated that he might impose a universal tariff on all imports, saying that he believed all countries, allies or not, were taking advantage of the US, and he didn’t like that.

Less than a week later, Trump announced that he would impose 25% tariffs on all good from Colombia, with immediate effect, and would double that tariff to 50% within a week. This appears to have been a punishment for the Colombian government’s decision to turn back planes full of immigrants the US government deported and sent their way, without approval from the intended recipient of those deported people, the Colombian government. There was a minor tiff between these governments, but the White House declared victory on the matter later that night, saying the tariffs would be held in reserve, implying they could come back at any time if their demands are not met.

An executive order implementing the threatened 25% tariffs on Canada and Mexico was signed on February 1, and a new 10% tariff on China went into effect the same day. Countermeasures were threatened by everyone involved, and after Trump published a social media post saying there would probably be economic pain for a while, his government agreed to a 30 day pause on tariffs for Mexico and Canada, while also threatening new tariffs against the European Union; another long-time US ally.

The new 10% tariff on Chinese imports went into effect on February 4, and China retaliated with its own counter-tariffs on US goods, including things like farm machinery and energy products. It also implemented new restrictions on the export of rare earth minerals to the US—a category of raw materials everyone is scrambling to secure, as they’re vital for the production of batteries and other fundamental technologies—and they launched a new antimonopoly investigation into Google, which deals with some Chinese companies.

On February 10, Trump reimposed a 25% tariff on all foreign steel and aluminum; a move that made US metal companies happy, but essentially all other US companies very unhappy, and in mid-February he threatened even more, broad, and vague tariffs on basically everyone, saying he’s doing what he’s doing in order to force companies to move manufacturing infrastructure back to the US, after decades of offshoring everything.

At the end of February, Trump said the delayed tariffs on Canada and Mexico would go into effect, as planned, on March 4, alongside those new 10% tariffs on China. On that day, Canada implemented its own counter-tariffs on the US to the tune of 25% on about $155 billion of US goods imported by the country.

Canada and Mexico send about 80% of their exports to the US market, so their economies are expected to be hit hard by this trade war. China, in contrast, only sends about 15% of its exports to the US, so the impact will be more tempered.

These three countries, though, are the US’s largest trading partners, collectively accounting for over 40% of US imports and exports. In addition to buying a lot of US goods, they also export the majority of things like oil, beer, copper wire, chocolate, and other goods that the US consumes; and the cost of tariffs are almost always passed on to the end-consumer, so higher tariffs on these sorts of goods mean raised prices on a lot of stuff across the economy.

On March 6, after a lot of back-and-forth with US automakers and with the Mexican and Canadian governments, a lot of the tariffs placed on goods from these countries were suspended, the US government denying that their withdrawal had anything to do with the US market, which was suffering in response to this wave of economic disruptions—though many tariffs were kept in place, and Trump said the US would still impose tariffs on all steel and aluminum imports beginning on March 12.

On the 12th, the EU and Canada announced a new wave of retaliatory tariffs against the US, though the European side said they would hold off on their implementation of these tariffs, waiting till April 1 to see what happens. The next day, Trump threatened a 200% charge on alcoholic products from the EU in response to their planned 50% tariffs on US whiskey and other products within their borders.

At the moment, as of mid-March 2025, a lot of these tariffs are still speculative, as it’s generally understood, from Trump’s bombastic approach to deal-making and his previous backtracking from these sorts of threats, that many of these tariffs could disappear, announced solely to provide leverage against those Trump wants to squeeze for more concessions and what he considers to be more favorable trade terms. Some of them could become concrete reality, though, and part of the issue here is that it’s nearly impossible to know which is which, because there also seems to be a larger effort to rewire the US and global economies by this administration—and that effort, plus the uncertainty caused by tariffs and similar actions, are leading to some pretty severe market upsets within the US, and resultantly around the world, as well.

And that’s what I’d like to talk about today: the impacts of these tariffs and other actions by this administration, so far, and what might happen next, based on currently available numbers and analysis.

—

Economies are ridiculously complex systems, and it’s impossible to say with 100% certainty what caused what, and to what degree things would be different had some other path been taken by those in control of various regulatory and economic levers.

That said, the nonpartisan Tax Foundation has estimated that just those first batch of proposed tariffs by the US government, not including impacts from foreign retaliations, which could be substantial, will reduce US GDP by about 0.4% and reduce total hours worked by the equivalent of 309,000 full-time jobs; so a lot less output, and a lot less overall productivity.

That’s on top of the estimated 0.2% long-term decrease in US GDP caused by the first Trump administration’s tariffs, which were maintained by the subsequent Biden administration.

These existing tariffs raised prices in the US and reduced both output and employment, which means the boom the US economy saw under the Biden administration might have been even boomier, had those tariffs been dropped. But now they’re more or less locked in, and these new tariffs will probably amplify their effect, near-term and long-term.

On top of that, the constant threats and pullbacks and seemingly off-the-cuff decisions to implement what amounts to all sorts of huge-scale taxes on a frenetic array of goods, including luxuries, but also some very fundamental things, like the metals we use to build and manufacture basically everything, is stoking uncertainty throughout the US and global economies.

That uncertainty has wide-ranging impacts, but one of the most direct consequences is that consumer sentiment in the US has nose-dived, as ordinary people worry about the combined impacts of tariffs, cuts to government programs, layoffs across government agencies, and new restrictions on immigration, which even ignoring the human element of such things can cause all sorts of issues across industries that rely on immigrant workers to stay afloat.

In mid-March of this year, US consumer sentiment hit 57.9, down from 64.7 in February. That’s the lowest its been since November of 2022, it’s down 27% from a year earlier, and it’s a lot lower than economist predictions for this month, which were set at 63.2.

Consumer sentiment tells us how people are feeling about the economy, about their potential to earn, and about where things are going. This influences how people spend, how they consume, and that in turn helps determine how the overall economy will go in the coming years, as people will be more likely to hunker down and save, taking as few risks as possible and making fewer purchases if they believe things will be rough; which in some cases can become a self-fulfilling prophecy, because those behaviors tend to shrink the economy, which leads to less output, fewer investments being made, more layoffs, and so on. That means a drop in consumer sentiment can make things bad even if they would otherwise be good, but if they’re bad already, they can become even worse because folks stop doing things that would improve the economy, out of self-preservation.

And that impact can be just as pronounced when things are weird and wobbly, rather than outright bad, as seems to be the case in the US at the moment.

There’s no firm evidence that the US economy is destined for a recession at this point, but the Russell 2000 index, which is made up of smaller companies than indexes like the S&P 500, and which is thus more prone to on-the-ground variables than its larger index kin, has dropped more than 16% since November, when it hit a new high on optimism about what the new Trump administration might do for businesses and the economy.

The S&P 500 also collapsed, though about half as much, and it rallied somewhat last week as investors bought the dip, scooping up stocks at lower prices following that drop. But there’s a lot of speculation that this might be a so-called dead cat bounce recovery—a moment in which a market seems to be recovering from a drop, but where it’s actually just bouncing up a little before heading back downward—and even this index, which is packed with corporations that are less susceptible to brief market wobbles than those in the Russell, might be heading for another downswing in the coming weeks, based on a lot of the economic numbers used to predict such things, at the moment.

One such metric is interest in alternative assets like gold, and the price of gold hit a new high last Friday, surpassing $3,000 per ounce for the first time ever.

That’s not something you tend to see when markets are healthy and people expect them to do well; if they are healthy and expected to surge rather than collapse, people tend to put their money in the market, not in shiny metals. But the shiny metals bet seems to be appealing right now, which hints at an even broader suspicion of the US economy than even that consumer sentiment and those bad market figures anticipate.

And the market figures have been bad. In just 3 weeks, beginning on February 19, the S&P alone lost more than $5 trillion in value.

The Atlanta Fed, which uses a fairly reliable model to predict future US GDP numbers, was predicting a healthy nearly 4% increase for the US’s GDP for the first quarter of 2025 back in late-January, early-February, but that prediction plummeted from positive 4% to negative 2.4% by early March.

That figure could still change, as it’s informed by data that don’t all arrive at the same time, but it’s still a staggering drop, and it reflects the impact of all these tariffs, but also all the destruction of government programs and agencies, the mass firings, and of course the uncertainty caused by all of these things in aggregate, alongside the impacts of said uncertainty on everyone at all scales, from trade partners to US-based small businesses to individual consumers.

So few people and institutions are happy about what’s happening right now, but it does look like, in the immediate future, at least, there are some beneficiaries of all this tumult.

Markets in China are flourishing, especially Hong Kong’s Hang Seng index, which is up more than 20% since Trump’s inauguration on January 20. And Europe’s market, which has struggled with stasis for years now, is up more than 4% over that same period.

Uncertainty about markets, but also military alliances, especially NATO, have pushed Germany—which has struggled since Russia invaded Ukraine, when their energy markets were utterly scrambled, which in turn hobbled their massive manufacturing base—Germany has unleashed a huge amount of government funds on their economy, and that big uptick in spending has helped basically the whole EU market grow. The German government has traditionally been tight-pocketed, but a declaration by the incoming Chancellor that they would do whatever it takes to both defend themselves and boost their economic outlook in the face of unreliable backing from their long-time ally, the US, has bolstered enthusiasm and optimism throughout the region, bringing EU nations closer together, increasing spending on all sorts of fundamentals, and bringing them closer to the Canadian government, as well.

The Chinese government has recently indicated they’ll be injecting a bunch of money and other types of support in their economy, as well, which creates a stark contrast with the US government, which seems to be refocusing on pulling government resources from across society and the economy, and spending mostly on tax cuts for the wealthiest people and biggest companies, instead.

The US government’s efforts to go America first, and not do anyone, even its longest-term, most reliable allies, any favors, or even trade in what might be considered a balanced way, thus seems to be scrambling US markets while simultaneously stoking those that are being cut off, unifying aspects of the rest of the world in antagonism against the US, while also providing them with incentive to reinvest in their own markets; which could be good for them long-term, making them less reliant on the US in all sorts of ways, but which seems pretty bad for the US in particular, short-term, and casts the US-dominated global order into disarray for the immediate future, with all sorts of consequences, economic and otherwise.

The degree to which this impacts Trump’s approval ratings has yet to be seen, as while his approval is collapsing, especially on the economy, right now, a lot of the most serious economic impacts are expected to fall hard on regions that most enthusiastically voted for him, and Republican talking points have already pivoted toward messaging that implies suffering for a while is good and patriotic.

That message might succeed and keep people on side even as their investments collapse and tariff-driven inflation hits their bottom-lines, or it might not. But it seems like the administration is ramping up for a version of austerity that doesn’t actually reduce the deficit, but instead takes a bunch of money from programs and investments that helped these areas, and moves it to other stuff that mostly helps fund tax cuts for wealthy allies of the administration—and that could come back to bite them, come election season.

All of this is also happening in parallel to the many political maneuverings of the administration and its opposition, though, and just recently the Republican-held congress was able to pass a funding bill, moving a lot more authority and control to the White House; so whatever the short-term approval numbers show, none of this seems to be having much of a negative impact on Trump’s control of government. That could change, though, over the course of the next year, leading into 2026’s midterm election, when the makeup of congress could be influenced by these and similar decisions.

Show Notes

https://www.reuters.com/markets/us/futures-rise-after-volatile-week-consumer-data-tap-2025-03-14/

https://www.wsj.com/economy/consumers/consumer-confidence-march-2025-drops-trump-trade-e7e0964d

https://www.axios.com/2025/03/15/economic-indicators-recession-risk

https://www.cnn.com/2025/03/14/investing/gold-price-today-3000-ounce-intl/index.html

https://www.cnbc.com/2025/03/14/us-stock-market-loses-5-trillion-in-value-in-three-weeks.html

https://www.nytimes.com/2025/03/14/business/russell-2000-bear-market.html

https://www.atlantafed.org/cqer/research/gdpnow

https://www.nytimes.com/2025/03/14/us/politics/stock-market-correction-trump-tariffs.html

https://www.nfib.com/wp-content/uploads/2025/03/NFIB-SBET-Report-Feb.-2025.pdf

https://www.nytimes.com/2025/03/14/your-money/car-shopping-trump-tariffs-cfpb.html

https://www.nytimes.com/2025/03/16/business/trump-sp-500-stocks-europe-china.html

https://archive.ph/GNPRf

https://www.realclearpolling.com/polls/approval/donald-trump/issues/economy

https://www.nytimes.com/interactive/2025/03/15/business/economy/tariffs-trump-maps-voters.html

https://www.nytimes.com/2025/03/15/us/politics/trump-spending-bill-government-shutdown.html

https://www.wsj.com/finance/stocks/investing-stocks-risk-strategies-trump-policies-c4a5d3d9

https://www.wsj.com/finance/currencies/trump-trade-tariffs-us-dollar-value-814cbe37

https://www.wsj.com/livecoverage/stock-market-today-dow-nasdaq-sp500-03-17-2025

https://www.politico.com/news/2025/03/16/wall-street-hoped-scott-bessent-would-keep-trump-in-check-he-had-other-ideas-00231771

https://www.businessinsider.com/wall-street-mergers-acquisitions-ipos-hiring-slumps-trump-tariffs-2025-3

https://www.politico.com/news/2025/03/14/trump-trade-wars-consumer-sentiment-00230833

https://archive.ph/fUKPs

https://www.nytimes.com/2025/03/13/business/economy/trump-tariff-timeline.html

https://www.nytimes.com/2025/03/14/business/energy-environment/trump-energy-oil-gas.html

https://taxfoundation.org/research/all/federal/trump-tariffs-trade-war/

This is a public episode. If you'd like to discuss this with other subscribers or get access to bonus episodes, visit letsknowthings.substack.com/subscribe

Valverde's Late Winner Keeps Madrid In The Title Race

The Rest Is Football

Alex's Newcastle Trip and Interviews

The AI-powered Podcast Player