- Analysis: Former Treasury secretary Larry Summers said Trump’s tariff policy is “a stop or I’ll shoot myself in the foot” kind of threat; the editorial board of the Wall Street Journal said it was “The Dumbest Trade War in History;” and JP Morgan said it was increasingly concerned. There is close to a consensus among economists that the tariffs aren’t beneficial for the U.S. and could spark a global trade war.
President Donald Trump kept his promise. He threatened tariffs, he carried them out, and investors the world over have hated it so far.
On Feb. 1, Trump slapped tariffs on Mexico, Canada, and China (with a carve-out for Canadian energy). Canada retaliated, and it appeared Mexico would do so too. Then Mexican president Claudia Sheinbaum said Trump had agreed to put the tariffs on hold for a month, after a phone conversation on Monday. In return, Sheinbaum said Mexico would prevent the flow of fentanyl from Mexico to the U.S. by sending 10,000 troops to the border.
Before that, stocks all around the world fell sharply. Markets are still reacting to the chaos and stocks clawed back ground after news of the delay — but they still aren’t up from the start of the week. The S&P 500 dropped as much as 1.9% earlier, but is down about 0.6% at the moment.
There is close to a consensus among investment bank analysts and economists that Trump’s tariffs aren’t beneficial for the country and could spark an unnecessary global trade war, according to Fortune’s review of many recently published research notes. Deutsche Bank’s global head of macro research warned clients of “a manic Monday”—and that’s what we got.
On CNN a day ago, former Treasury secretary Larry Summers claimed Trump’s tariff policy “defies economic logic,” and is “a stop or I’ll shoot myself in the foot” kind of thing. He was adamant it would mean higher prices for Americans and could cost the country jobs.
Trump has said his call to tax the three countries was intended to stop illegal immigration and drug trafficking. The president said there could be some pain because of his tariffs but it would be worth it in the end. “THIS WILL BE THE GOLDEN AGE OF AMERICA!” he said.
The Wall Street Journal’s editorial board—sympathetic to Republicans at times—called it “The Dumbest Trade War in History.” It saw no good reason to slam Mexico and Canada with a 25% tax, and China with a 10% one. “This reminds us of the old Bernard Lewis joke that it’s risky to be America’s enemy but it can be fatal to be its friend,” the Journal’s editorial board wrote. Likewise, The Financial Times editorial board called the policy "an absurdity."
JP Morgan, in a research note dated January 31, said it was “increasingly concerned that the policy mix may tilt into an unintentionally far less business-friendly stance.” The bank said the tariffs were materially different than those built into its baseline. Not to mention, the decision “threatened to dismantle a multi-decade free-trade agreement,” they wrote. Goldman Sachs, in a note dated February 2, said it anticipated the tariffs on Mexico and Canada to be short-lived. If they were long-term, the financial services company predicted consumer prices would rise.
Capital Economics took a more apocalyptic tone. The research firm on February 1 said the tariffs could be the “first strike in what could become a very destructive global trade war,” that they could push Mexico and Canada’s economies into a recession later this year, and that they might just mean the Federal Reserve slamming the door on any more interest rate cuts over the next 12 to 18 months.
Trump called his conversation with Mexico’s president friendly and also said he spoke to Canadian prime minister Justin Trudeau. It doesn’t seem the latter conversation resulted in a deal, yet. China reportedly wants to talk, too.
The tariffs may have been a Trumpian negotiation tactic. It will be interesting to see if they are back on the books after the month-long pause, or if Canada or China can extract similar concessions.
Either way, there is likely more Trump 2.0 turbulence ahead.
