Will Trump's Tariffs Trigger Another Recession?

[danjuno]

This looks to be getting big enough to warrant it's own thread.

The Market is already reacting to The Tariffs Announcement:

Stocks fall again on Wall Street as companies react to Trump’s tariffs​

NEW YORK (AP) — Stocks tumbled on Wall Street Tuesday as a trade war between the U.S. and its key trading partners escalated, wiping out all the gains for the S&P 500 since Election Day.

The tariffs between the U.S., China, Canada, and Mexico helped extend a recent slump for U.S. stocks that was prompted by signs of weakness in the economy.

The S&P 500 fell 1.7%, with every sector in the benchmark index losing ground. The Dow Jones Industrial Average shed 722 points, or 1.7%, as of 11:03 a.m. Eastern time.

The Nasdaq composite fell 1.5%. The tech-heavy index is on track to posting a 10% decline from its most recent closing high, which is what the market considers a correction. Technology stocks helped drive much of the market’s gains in 2024, but have been losing ground and acting as a heavy weight so far in 2025.

Markets in Europe fell sharply while stocks in Asia saw more modest declines.


The drops follow a steep sell-off Monday. Altogether, the decline has wiped out all of the markets’ gains since President Donald Trump’s election in November. That rally had been built largely on hopes for policies from Trump that would strengthen the U.S. economy and businesses. Worries about tariffs raising consumer prices and reigniting inflation have been weighing on both the economy and Wall Street.

Imports from Canada and Mexico are now to be taxed at 25%, with Canadian energy products subject to 10% import duties. The 10% tariff that Trump placed on Chinese imports in February was doubled to 20%.


Retaliations were swift.

China responded to new U.S. tariffs by announcing it will impose additional tariffs of up to 15% on imports of key U.S. farm products, including chicken, pork, soy and beef, and expanded controls on doing business with key U.S. companies. Canada plans on slapping tariffs on more than $100 billion of American goods over the course of 21 days. Mexico also plans tariffs on goods imported from the U.S.


The tariffs are prompting warnings from retailers, including Target and Best Buy, as they report their latest financial results. Target slumped 5.4% despite beating Wall Street’s earnings forecasts. there will be “meaningful pressure” on its profits to start the year because of tariffs and other costs.

Best Buy plunged 14.2% after giving investors a weaker-than-expected earnings forecast and warning about tariff impacts.

“International trade is critically important to our business and industry,” said Best Buy CEO Corie Barry.

Barry said China and Mexico are the top two sources for products that Best Buy sells and it also expects vendors to pass along tariff costs, which would make price increases for American consumers likely.

The warnings are coming in as companies close out their latest round of earnings reports. Companies in the S&P 500 reported broad earnings growth of 18% in the fourth quarter. Wall Street has already trimmed expectations for the current quarter to about 7% growth from just over forecasts of 11% at the beginning of the year.

Worries about profits follow a series of economic reports with worrisome signals that include U.S. households becoming more pessimistic about inflation and pulling back on spending. Consumer spending has essentially driven U.S. economic growth in the face of high interest rates.


Wall Street has been hoping that the Federal Reserve will continue lowering interest rates in 2025. The central bank has signaled more caution, though, partly because of uncertainty surrounding the economic impact of tariffs. The Fed is expected to hold rates steady at its upcoming meeting later in March.

The Fed raised interest rates to their highest level in two decades in order to tame inflation. It started cutting its benchmark rate in 2024 as the rate of inflation moved closer to its target of 2%. But, inflation remains stubbornly just above that target and tariffs threaten price increases that could fuel inflation.


In the bond market, Treasury yields sank. The yield on the 10-year Treasury fell to 4.12% from 4.16% late Monday. It’s down sharply from last month, when it was approaching 4.80%, as worries have grown about where the U.S. economy is heading.

___​

AP Business Writers Matt Ott and Elaine Kurtenbach contributed.

So, the panic selling has already begun! Will the market adjust, or are we ready for another crash?

 

[Klaus Hergersheimer]

Trump is using an emergency powers act to impose tariffs; it is the only basis for which he is doing this.
The congress can quickly amend or repeal the law (and it'd probably be veto-proof) so that he cannot do that, not without some significant justification by him. They could ward off a recession if they so choose. But will they do that? I'm not sure. If his opponents are willing to tolerate a recession to hopefully make gains in the midterm elections, my guess is they likely will not. They'll get their paycheck regardless. There is a lot of cynicism to be had in that town.

 

[Godwynn]

It depends on how long they are in place and potential escalation and increase in the tariff rates. Even if this is offset by a reduction in income tax rates, I think tariffs are more punitive.

 

[Lexicus]

If the tariffs remain in place they will probably cause a recession.

If his opponents are willing to tolerate a recession to hopefully make gains in the midterm elections, my guess is they likely will not. They'll get their paycheck regardless. There is a lot of cynicism to be had in that town.

Imagine being an adult human and thinking this is the salient consideration here

 

[Klaus Hergersheimer]

It's not that hard. You should try having a bit of skepticism towards the federal government at large and not exclusively old white guys.

 

[Arwon]

I don't think they will because the federal spending and job cuts already have

 

[Lexicus]

I don't think they will because the federal spending and job cuts already have

Yeah when it comes to recession this is probably bigger than the tariffs

 

[Moriarte]

So, the panic selling has already begun! Will the market adjust, or are we ready for another crash?

I expect substantial correction, but in European markets, not in the USA. USA/China correction was ongoing during last 2 months.

While the USA and China markets were under pressure, European DAX, FTSE and some others were the high flyers, during that time frame. In my opinion that was a misjudgement on the part of investment professionals, who directed large flows of cash into EU markets during this time. I don't know what these judgements were based upon, given EU has mounting troubles of slow GDP growth,
energy costs, car manufacturing on the brink of collapse, strangled by China competition, and varying degrees of stagnation or contraction across all large EU countries in labor/manufacturing/industrial production, exports and consumer spending.

I think Tariff war will affect everyone equally, much like inflation. Everyone will lose out equally, since all tariffs from large players to large players will be reciprocal. And if we remove the layer of tariffs from consideration, we will find economies of USA and China are not only larger, but also in better condition going forward, so this is where the money, which flow out of world markets right now will flow into. I also expect Russian and Ukrainian markets rally once cease fire is achieved - this is customary after wars are concluded.

The most attractive large investment targets right now, judging by projected GDP growth are India, China, USA in that order.

 

[Birdjaguar]

Gutting the federal government and adding tariffs is a terrible combination. Stocks got a big bump from election day until Jan 20. All that has been lost. 401k are included.

 

[Quintillus]

I work for a sizeable US manufacturing company and the upper leadership has become increasingly fiscally conservative since the election, citing "future challenges" in a recent decision to offer early retirements. It's not hard to see what they're thinking. We do a lot of business in Canada, and tariffs on Canadian goods will indirectly impact the demand for our products in the U.S. (even U.S.-made products) even if none of our products ever cross the border.

Add in increase in costs due to at least some products or ingredients for products being subject to new tariffs, the increasing appeal of non-American brands in Canada, and the hesitancy of companies and individuals to initiate projects that would use our products due to economic uncertainty, and we'll definitely be impacted, the only question is how much.

A variation of that is likely to be the case across any U.S. manufacturer that isn't directly protected by tariffs (e.g. steel mills), especially those that aren't purely domestic.

A natural response for someone working at a manufacturing company impacted by tariffs is to look at that and ask whether they should also become more fiscally conservative, reducing discretionary expenditures - in other words the efforts of companies and individuals to protection themselves financially from the risk of a recession become mutually self-reinforcing, and at a certain point, a recession becomes a self-fulfilling prophecy.

That point hasn't been crossed yet, but could be within a matter of months, IMO.

 

[soundjata]

A small price to pay for having our first trillionaire

 

[EvaDK]

As @Quintillus hits at, there's also psychology at play. If US manufacturing and the financial markets start to make business decisions expecting that the US economy is headed for recession, then those decisions in themselves will contribute to that outcome; less investments, safer investments, less risk, no new hirings and so on.

I don't see a hard recession or worse as a likely scenario; I suspect that Trump's trade war won't last too long. He will declare victory at some point, claiming that he got concessions from foreign leaders and lift his tariffs. The real reason will be that his trade war is already becoming quite unpopular among his own base and he will come under increasing pressure over time.

 

[Lexicus]

A natural response for someone working at a manufacturing company impacted by tariffs is to look at that and ask whether they should also become more fiscally conservative, reducing discretionary expenditures - in other words the efforts of companies and individuals to protection themselves financially from the risk of a recession become mutually self-reinforcing, and at a certain point, a recession becomes a self-fulfilling prophecy.

 

[Hygro]

We're already way down for quarter 1. Consumers are choosing to hold instead of spend.

The tarriffs could really lower how far a dollar can go (regardless of how "strong" the dollar is), which could trigger some recession cascade. The chaos is also causing industry to hold cash and not invest, which is highly recessionary.

The tax cuts for the rich will indeed offset some of this, but the spending cuts + the illegal withholding of money + the firing of federal workers is SUPER recessionary.

It's according to plan, however. Bubbles have constraints in practice and at some point its better for the wealthiest to take a big hit but still have FAT WADS to spend in the upcoming firesale. They don't seek nominal wealth or even raw purchasing power of volume of stuff, or they would be economy maximizing progressives. Instead they seek percent of total ownership.

In conspiracy world, the timing is when the government promises to buy all of Tesla's fleet at a surplus, ongoing, so Musk can play too — otherwise he's a bubble casualty.

 

[Thorgalaeg]

What? That is good or bad?

 

[Lexicus]

What? That is good or bad?

Bad

 

[Ajidica]

It all depends on how long tariffs last. If they last much more than a couple months US companies will burn through their domestic stock and have to start paying tariffs. In the ag space, a lot of flour mills (which use higher protein wheat from Canada to make pizza and pasta) brought in a bunch of wheat before tariffs hit so they can sit on that for a few months playing the wait-and-see game.
I don't have the numbers handy, but huge amounts of the oats consumed in the US are grown in Canada because their climate is well suited to oats*. Besides the obvious like oatmeal and snack bars, a fairly significant consumer of high quality oats are racehorses.

This will they/wont they with tariffs is long term bad for the economy. Just choose one and business can plan around it. It also hurting US ag exports even for unaffected countries right now. Who wants to be hit with a multi million dollar extra fee on the boat of grain you bought because El Trumpo decided Morocco is a silly country? There is also the tariff that I can't remember if it is in place yet on any vessel made in China.

*or their climate is crap so only oats and wheat grow well there!

 

[Theov]

Maybe those $500 billion dollar from the mineral deal that Zelensky is willing to sign will ease the pain a little for Americans.

 

[Birdjaguar]

Maybe those $500 billion dollar from the mineral deal that Zelensky is willing to sign will ease the pain a little for Americans.

How long do you think it will be before the first shovel full of earth gets turned over?

 

[Theov]

How long do you think it will be before the first shovel full of earth gets turned over?

About 100 years ago. More or less.