Trump Trade War Triggers a Market Meltdown

President Donald Trump's plan to demolish the existing global economic order by enacting a new tariff regime sent U.S. stocks to their steepest plunge since 2020. Trump appeared unperturbed, though. "I think it's all going to work out," he told reporters. "Remember there are no tariffs if you build your plant or make your product in the U.S." We've got a look at the massive repercussions of Trump's trade war, plus an update on Senate efforts to enact the rest of the president's agenda.

Trump Trade War Triggers a Market Meltdown

Markets around the world plummeted on Thursday in response to new tariffs unveiled by President 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 (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, a $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. And 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.

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. (Some of those questions touch upon 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 push inflation to around 5% if made permanent, and the unemployment rate could climb to 5.5%.

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."

Senate Prepares to Vote on Blueprint to Pass Trump Agenda

Senate Republicans on Wednesday unveiled a 70-page budget resolution that would pave the way for a massive package of tax cuts, border enforcement measures, defense funding and a $5 trillion increase in the federal borrowing limit.

The plan embraces an accounting approach that budget hawks have derided as a gimmick - and an expensive one at that, zeroing out the cost of some $4 trillion in renewed tax cuts.

Senate Budget Committee Chairman Lindsey Graham said he would use a "current-policy baseline" that treats an extension of the 2017 tax cuts as having no cost because it simply continues existing policy. "I have determined that current policy will be the budget baseline regarding taxation," Graham said in a statement. "This will allow the tax cuts to be permanent — which will tremendously boost the economy."

In all, the Senate framework would allow lawmakers to add up to $5.8 trillion to deficits over a decade, or $6.9 trillion including interest, according to the Committee for a Responsible Federal Budget, a nonpartisan group that advocates for deficit reduction. That total includes up to $1.5 trillion in additional room for new tax cuts sought by President Donald Trump, such as exempting tips from income taxes.

As in an earlier Senate plan, the new framework also calls for $150 billion in new defense spending and $175 billion for border security. That previous plan would have left tax changes for later, but Trump and House leaders preferred to roll up their agenda in what the president dubbed "one big, beautiful bill."

The latest Senate blueprint adopts that single-bill approach, but it differs in significant ways from the plan approved by the House in February, and it could still face challenges as a result. For example, while it makes clear that Republicans still want to cut more than $2 trillion in spending over 10 years, it calls for just a small fraction of that sum - a minimum of $4 billion in cuts, compared to at least $1.5 trillion in the House framework. GOP senators say that lower threshold allows them the wiggle room needed to enact the plan under the process they want to use to avert the threat of a Democratic filibuster.

"The Senate Plan has my Complete and Total Support," Trump said in a statement posted to his social media site. "Every Republican, House and Senate, must UNIFY. We need to pass it IMMEDIATELY!"

Democrats and budget watchers blasted the GOP plan as a fiscal disaster.

"No amount of gaslighting from Republicans about the true cost of their tax plan, now upward of $5 trillion, can hide the fact that they want to pay for handouts to billionaires and corporations by kicking millions of Americans off their health insurance, driving up child hunger and wiping out hundreds of thousands of jobs," said Sen. Ron Wyden, the top Democrat on the Senate Finance Committee. "In terms of American lives ruined and lost, the human toll of what Republicans are trying to accomplish will be horrific."

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, said that the Senate plan trashes any semblance of fiscal responsibility by ignoring official congressional scorekeepers and potentially setting the stage for the largest deficit increase ever, allowing more than double the new borrowing as the House plan.

"This budget is a farce and it should be a non-starter," she said in a scathing statement. "But more than that, it should be a loud alarm bell to fiscal hawks and future generations that their interests are not only being ignored, but fully undermined."

What's next: The Senate will work to pass the budget resolution sometime this weekend - only a simple majority will be needed - but lawmakers must first go through an extended "vote-a-rama" on amendments, including some politically fraught ones. If the framework is adopted in the Senate in the next few days, the House would be expected to take it up next week. If the House also adopts the resolution, most congressional committees will have until May 9 to come up with their parts of the reconciliation bill, with a goal of getting the legislation passed by Memorial Day.

That means that the heaviest lifting is still to come as Republican lawmakers must resolve fights that they have delayed until now — and decide specifically what programs to cut and by how much. "It's a meaningful step, but it's a baby step, folks. It's just a blueprint," Sen. John Kennedy of Louisiana told reporters of the budget resolution. "The real work starts after we do this."

That work will likely have to assuage concerns of House conservatives who won't be comfortable voting for a debt-limit increase and have been pushing for steep spending cuts to offset the cost of tax cuts. Some Republicans have also expressed worries about massive Medicaid cuts that may be included in the plan.

HHS Fires Entire Staff of Program That Helps Low-Income People Pay Utility Bills: Reports

As part of its purge of some 10,000 employees across the Department of Health and Human Services, the Trump administration on Tuesday reportedly fired the entire staff of the federal Low Income Home Energy Assistance Program, or LIHEAP, a program that helps more than 6 million poorer Americans afford heat and air conditioning.

"They fired everybody, there's nobody left to do anything," Mark Wolfe, executive director of the National Energy Assistance Directors Association, which represents the state managers of the program, told The New York Times. "Either this was incredibly sloppy, or they intend to kill the program altogether."

The Times's Brad Plumer reports that about 90% of the $4.1 billion in fiscal year 2025 funding for the program was sent to states in October, with about $378 million left for summer cooling bills.

Various reports say the program staff numbered between 10 and about 25 employees. With those workers overseeing the program all laid off, "it's not clear how the remaining funds could be disbursed to the states, even though Congress has explicitly ordered the federal government to spend the money," Plumer writes.

Funding for the program was reportedly cut this year from $6.1 billion last year.

A spokeswoman for the Department of Health and Human Services told the Times in a statement that the agency "will continue to comply" with the law and that the Trump administration's reorganization will leave the agency "better positioned to execute on Congress's statutory intent."

Democrats slammed the cuts. Sen. Ed Markey of Massachusetts said he would fight to restore the lost jobs and look to expand and modernize the program. "Eliminating the entire federal staff responsible for LIHEAP-a program that millions of households depend on to stay warm in the winter and cool in the summer-isn't reform, it's sabotage," he said in a statement. "This is what Trump governance looks like: Dismantle the programs people rely on, create chaos in essential services, and leave working families to foot the bill."

Numbers of the Day

275,240 and 216,670: U.S.-based employers announced 275,240 job cuts in March, according to outplacement firm Challenger, Gray & Christmas, which says last month's total was up 205% from March 2024 and is the third highest ever, behind only April and May 2020, during the Covid-19 pandemic.

The federal government led all sectors in March cuts, with the Trump administration's Department of Government Efficiency contributing 216,670 to the monthly total. "So far this year, the Government has cut 279,445, an increase of 672% from the 36,195 cuts announced in the first quarter of 2024," Challenger, Gray & Christmas said.

**11%: **The percentage of American adults who say they have been unable to afford or access healthcare recently has reached its highest level since 2021, according to a survey conducted late last year and released Wednesday by Gallup and West Health. The survey found that 11% of people said they had been unable to afford needed care and medicine within the past three months, including a quarter of those in households making less than $24,000 a year. The survey found that disparities in access to care based on race, ethnicity and income were at their highest point since surveying began in 2021. More than a third of people surveyed, 35%, said they would not be able to afford quality care today if they needed it, also a new high since 2021.

Fiscal News Roundup

• Fear That Trump Tariffs Will Spark Recession Wipes out More Than $2 Trillion in Value From US Stocks – Associated Press
• White House Pushes Lawmakers to Embrace Trump Tariffs as Markets Tank – Politico
• Top Republican Leads Bill to Reassert Congress' Tariff Power Amid Trump Trade War – Politico
• Tariff-Related Layoffs Hit Five US Auto Plants That Supply Factories in Canada and Mexico – CNN
• Trump Contradicts Aides, Talking Points on Purpose of Global Tariffs – Washington Post
• Economists Say the Way Trump Calculated Tariffs Makes No Sense – Washington Post
• Trump's Tariffs - if Sustained - Likely to Push the U.S. and Globe Into Recession, Says JPMorgan – CNBC
• World Leaders React to Trump's Sweeping Tariffs – Axios
• Trump's Tariffs Target Heard Island and McDonald Islands, Australian Territory Inhabited by Penguins – CBS News
• Senate Confirms Mehmet Oz to Take Lead of Medicare and Medicaid Agency – Associated Press
• Senate GOP Unveils New Budget Blueprint and Braces for Another Vote-a-Rama – CNN
• Senate Budget Blueprint Empowers GOP Chair to Decide if Trump Tax Cuts Add to Deficit – The Hill
• Republicans Plan to Skirt Senate Rules to Push Through More Tax Cuts – New York Times
• E.P.A. Hunt for Shady Deals and 'Gold Bars' Comes Up Empty – New York Times
• Trump Approval Slips to Lowest Point in Second Term: Survey – The Hill

Views and Analysis

• The Nonsense Behind America's Trade War – Washington Post Editorial Board
• Trump's Tariffs Aim to Create a New World Economic Order – Nick Timiraos, Wall Street Journal
• Trump's Second-Term Honeymoon Might Be Over – Eli Stokols and Jake Traylor, Politico
• Trump Just Imposed the Largest Tax Hike Since 1942 Without Congressional Approval – Max Boot, Washington Post
• 'This Could Get Much Uglier': The Fatal Flaw in Trump's Trade War – Victoria Guida, Politico
• What Tariffs Could Mean for US Workers, Consumers and the Economy – Tobias Burns, The Hill
• 5 Surprises From Trump's Sweeping New Tariffs – Alex Gangitano and Sylvan Lane, The Hill
• Trump's Trade War Risks Forfeiting America's Economic Primacy – Patricia Cohen, New York Times
• They're Not Tariffs, They're Sanctions – David Dayen, American Prospect
• Steve Rattner on Just How Bad Things Will Get Under Trump's Tariffs – Patrick Healy and Steven Rattner, New York Times
• Trump Just Bet the Farm – Thomas L. Freidman, New York Times
• What's in the FY2025 Senate Budget Resolution – Andrew Lautz and Rachel Snyderman, Bipartisan Policy Center
• The Senate's Latest Budget Resolution is a Fiscal Train Wreck – Romina Boccia and Dominik Lett, CATO Institute
• The Senate GOP Has Set Itself Up for a High-Risk Tax Heist – Hayes Brown, MSNBC
• How Much Did President Biden Add to the Debt? – Committee for a Responsible Federal Budget
• Rule by Contractor – Brett Heinz, American Prospect