WASHINGTON (MaceNews) – As one round of tariffs took effect Tuesday and more were threatened, rampant uncertainty permeated temporarily plunging U.S. stock markets while interest rates continued to dramatically ease.
Analysts found themselves giving contradictory assessments on the business channels as the probabilities for more Federal Reserve rate cuts this year were coupled with dire predictions of skyrocketing inflation to come that, if true, would argue against more monetary policy easing.
One incontrovertible fact was that the midnight U.S. imposition of 25% tariffs against Mexico and Canada goods, as well as another 10% against China products has triggered a massive international trade war. Retaliatory tariffs were applied instantly by the three countries and just as fast, President Trump threatened to retaliate against the retaliation.
“Please explain to Governor Trudeau of Canada,” Trump posted – continuing his jibe that Trudeau should be heading a 51st state – “that when he puts on a Retaliatory Tariff on the U.S., our Reciprocal Tariff will immediately increase by a like amount!”
Yet despite the markets’ negativity, there still seemed to be a reluctance among market participants to fully accept that decades of globalization and the highly integrated trading system were being replaced by open-ended chaos and fortress economies. By the close U.S. stock indexes had left their earlier steep losses behind them. More plausible is a coming setback to economic growth, analysts say, along with an eventual renegotiation of tariff levels.
If only a portion of the worst case scenarios come true being described by trade experts – like thousands of dollars of higher prices for autos and houses within weeks as well as huge jumps in the price of fresh produce within days – American consumers would be faced with an inflationary Armegeddon.
That was hardly the view at the White House and Cabinet members spread out to media outlets to tell a different, though somewhat muddled, story. Commerce Secretary Howard Lutnick, for instance, told interviewers that tariffs are an answer to a plague of fentanyl and also a reaction to unfair trade practices elsewhere.
China’s new tariffs versus corn and soybeans, the administration said, would lower domestic food prices because farm products being cut off from export would flood the domestic market.
While many mainstream economists and, of course, Democratic party voices, found the Trump trade policy inexplicable, punishing both friends and competitors alike, Republicans who spoke out defended the “long game” they said was the intention. It will boost domestic manufacturing, lower the deficit and cut interest rates. Establishing a “fair trade’ environment globally will pay off for the U.S. in the long run, they say.
Indeed, Treasury Secretary Scott Bessent pointed to the day-by-day decline in the yield of the benchmark 10-year US security, down to 4.20% on Tuesday, as promising lower mortgage rates ahead along with accelerated house sales. The pain of higher prices will prove to be temporary in this view.
Many CEOs, however, are predicting that they will be forced to raise prices and not necessarily only in the short term. Auto industry executives, in particular, saw only steep damage to their U.S. operations as cross-border supply chains seemed to be in the process of being severed, jeopardizing enormous investments in Mexico and Canada.
More generally, the trade disruptions along with helter-skelter DOGE firings under way in government staffing ranks, threatened cuts in defense spending and other aspects of a Blitzkrieg government cost-cutting attack, all with little explanation, appeared to be clouding consumer confidence and business sentiment.
It doesn’t help that another government shutdown is threatened for mid-March amid a welter of federal budget challenges with legislative gridlock apparently intensifying. The administration’s radical tilt toward a rehabilitation of relations with Russia is recalibrating foreign policy at the same time.
For anyone keeping score, the day’s new tariffs are now 20% against all China goods. There is a 10% carveout for Canada oil from its otherwise 25% tariff rate that also applies to Mexico.
Coming up on March 12 is a global 25% tariff on steel and aluminum. In April so-called reciprocal global tariffs are supposed to be set, perhaps to be implemented by August.