Markets around the world plummeted on Thursday in response to new tariffs unveiled by President Donald Trump yesterday afternoon, but Republican officials stood by the White House plan while defending the president’s effort to remake the system of global production and trade.
Trump’s new tariffs impose a 10% minimum import tax on goods from most nations, with higher rates applied to many key trading partners, including 34% on China (which comes in addition to the 20% tariff already in place), 20% on the European Union, 25% on South Korea and 46% on Vietnam. The minimum tariffs take effect on April 5, while the higher rates kick in on April 9.
Investors responded forcefully to the tariff hikes, which were worse than some expected, with the S&P 500 falling more than 4% and the Dow Jones Industrial Average tumbling more than 1,600 points. According to The Wall Street Journal, stocks lost $3.1 trillion in market value, the largest decline since March 2020, when the coronavirus pandemic started.
Despite the market mayhem, Trump brushed the issue aside Thursday afternoon, instead focusing on his promise of future gains. “I think it’s going very well,” he said when asked about the market reaction. “You’ve never seen anything like it. The markets are going to boom. The stock is going to boom. The country is going to boom.”
White House officials told reporters that Trump “is not going to back off” and that the tariffs are not part of a negotiating tactic.
Playing the long game? Republicans are defending Trump’s move as an important step to fundamentally reorder the global trade system, a process that will take time to play out, however painful it may be initially. Trump himself has been somewhat vague about the timeline, suggesting that it will be relatively brief. “THE OPERATION IS OVER! THE PATIENT LIVED, AND IS HEALING,” he wrote on his social media platform Thursday. “THE PROGNOSIS IS THAT THE PATIENT WILL BE FAR STRONGER, BIGGER, BETTER, AND MORE RESILIENT THAN EVER BEFORE.”
Saying the U.S. needs “big change,” Vice President JD Vance delivered a similar message, telling Fox News that Trump is taking aim at “the Joe Biden globalist pathway” that he blamed for the weakening of the industrial base, the $2 trillion budget deficit and the growing national debt. Vance admitted, though, that Trump’s solution to the problem won’t arrive anytime soon. “We know people are struggling,” he said. “We’re fighting as quickly as we can to fix what was left to us, but it’s not going to happen immediately.”
Republican lawmakers also backed the Trump plan, with a focus on the rewards Trump has promised. “This is the same thing that happened under Trump 45, and we all lived happily ever after,” Sen. Roger Marshall of Kansas told reporters. Sen. Jim Banks of Indiana said the tariffs would be “so good” for his state, and he looked forward to the industrial jobs Trump vowed to bring home to the U.S. Rep. Marjorie Taylor Greene of Georgia made it clear that the tariffs are part of an effort rewrite the rules of trade so they tilt more favorably toward the U.S. “If you want to do business in America, you need to play by our rules,” she said.
Representatives of a handful of specific industries expressed support for the plan as well, including the National Cattlemen’s Beef Association and the Steel Manufacturers Association. “For too long, America’s family farmers and ranchers have been mistreated by certain trading partners around the world,” the cattlemen said. “President Trump is taking action to address numerous trade barriers that prevent consumers overseas from enjoying high-quality, wholesome American beef.”
Back to the future? Trump has repeatedly expressed admiration for President William McKinley, who was associated with high tariffs at a time when the U.S. was undergoing a period of intensive industrial development. Former House Speaker Newt Gingrich remarked last month that Trump is “increasingly convinced of the McKinley Model: High tariffs lead to massive capital investments in the U.S., leading to high-paying jobs.” Gingrich also said he assumed there “will be a two-three-year transition where we’ll all have to adjust.”
Numerous critics, however, have pointed out that the U.S. is a very different country today, dominating a global trading system that is based on the dollar rather than a country just emerging onto an international stage still dominated by Great Britain. Before World War I, the U.S. was still a developing power, with roughly a third of its population working in agriculture as part of an economy that was far less wealthy than now. By some estimates, per capita GDP is now six times higher than in 1900, with incomes and wealth driven by a service economy rather than a manufacturing one.
Still, the White House and Republican lawmakers are calling on the public to have faith in Trump’s economic vision, however much it is based on century-old institutions and power relations. “Let Donald Trump fix the American economy,” said Commerce Secretary on CNN. “He knows what he's doing. You gotta trust him... It's broken. Let him fix it.”
Warnings persist: In contrast to the optimistic takes pouring out of the White House, investors and many business owners expressed deep concerns about the design and implementation of Trump’s tariff plan. (Those questions include the tricky question of how the tariffs were calculated for each trade partner.) Economists at JPMorgan warned Thursday that they could cause a global recession.
“We view the full implementation of these policies as a substantial macro economic shock not currently incorporated in our forecasts,” economist Nora Szentivanyi of JPMorgan wrote on Thursday, per CNBC. “This shock will likely be magnified by its impact on sentiment and through the retaliation of countries facing significant increases in their tariff rates. We thus emphasize that these policies, if sustained, would likely push the US and global economy into recession this year.”
Analysts at UBS warned that the tariffs could reignite higher inflation. “Simple back-of-envelope calculations suggest a permanent implementation of the full set of proposed tariffs would see inflation rise to around 5% as prices adjust to the higher costs of imports,” the analysts wrote, per The Wall Street Journal’s Nick Timiraos. The unemployment rate could rise, too, climbing to 5.5%, the analysts said.
In an analysis of the long-term economic effects of the tariffs, the conservative-leaning Tax Foundation said they amount to a $1.8 trillion tax hike over 10 years. That tax increase will drag on economic growth, reducing GDP by 0.5% relative to the baseline.
“The imposed tariffs will reduce after-tax incomes by 2.1% on average, with the top 1% of taxpayers seeing a smaller 1.8% reduction in after-tax incomes,” said the Tax Foundation’s Eric York. “Per US household, the imposed tariffs will amount to an average tax increase of more than $2,100 in 2025.”
York also noted the historical precedents of such a tariff increase. “We estimate the average tariff rate will rise from 2.5% in 2024 to 18.8% in 2025—the highest since 1933,” she said. “The rate is similar to the early 1900s, before the US income tax.”