Trump Defends His Tariffs as Markets Plunge Again

Trump before his tariff announcement
Reuters
By Yuval Rosenberg and Michael Rainey

The Trump tariff turmoil continues. Markets plunged for a second straight day after China retaliated against Trump's trade war by announcing its own tariffs on imports of U.S. products starting April 10. Federal Reserve Chair Jerome Powell added to the concerns about Trump's tariffs, calling them "significantly larger than expected" and warning that they are "highly likely" to boost inflation. While Trump sows economic uncertainty, congressional Republicans are still working to pass his tax cuts and spending plans. Here's the latest.

Trump Defends His Tariffs as They Tank Stocks Again

As markets around the world continued their violent reaction to the new U.S. tariffs unveiled this week, with the S&P 500 falling nearly 6% and the Dow Jones Industrial Average plunging 5.5%, President Trump defended his trade plan and called for the Federal Reserve to cut interest rates - not because the tariffs are causing a market meltdown and threaten to trigger a recession, but because they economy is doing so well under his guidance.

On Friday morning, the Labor Department reported that job growth was stronger than expected in March, with non-farm payrolls increasing by 228,000, far stronger than the economists' estimate of 140,000. The unemployment rate rose, but only modestly, to a still-low 4.2%, driven by new entrants into the job market. Economists said the report reflected a remarkably resilient labor market that is still operating at or near full employment, sustaining the long period of solid growth that began under former President Joe Biden.

Trump was quick to take credit for the surprisingly strong report, sayingon his social media platform that his plans are "already working." He also called on Federal Reserve Chair Jerome Powell to lower interest rates, given the apparent strength of the economy. "CUT INTEREST RATES, JEROME, AND STOP PLAYING POLITICS!" Trump wrote.

Powell's warning: The Fed chair, however, provided a different take on the current economic situation, telling a group of business journalists at a meeting in Virginia that thanks to Trump's new tariffs, the U.S. economy now faces an increased risk of slower growth and higher inflation.

"While uncertainty remains elevated, it is now becoming clear that the tariff increases will be significantly larger than expected," Powell said. "The same is likely to be true of the economic effects, which will include higher inflation and slower growth. The size and duration of these effects remain uncertain."

Accordingly, Powell said the Fed is in no hurry to make a move on interest rate policy and will wait to see what the data says in the coming weeks and months. Higher inflation would pressure Fed policymakers to raise rates or hold off on cuts, while slower economic growth would lead to calls for rate reductions.

Some analysts worry that heightened concerns about tariff-driven inflation will keep the Fed from cutting rates or doing so quickly, potentially allowing Trump's trade war to cause more economic damage than it might do otherwise. "The Fed is in no position to offer the kind of insurance to the economy that they did in the 2018, 2019 trade war because inflation is too high and it's above their target," Julia Coronado of MacroPolicy Perspectives told Bloomberg. "Even if they conclude that they need to cut rates, they're likely to go later and slower than they would otherwise because we will be in the middle of an inflation impulse."

Other experts warned that a certain amount of economic damage is all but baked in at this point, assuming Trump stays the course. "Prices are going to go up, period," Martha Gimbel of the Yale Budget Lab told The New York Times. "These are really big tariffs. These are not things we can expect companies to just absorb."

Retaliations begin: In an ominous sign for the expansion of Trump's trade war, China retaliated against his new 34% tariff on Chinese goods by imposing its own 34% tariff on all American goods, starting on April 10. China also imposed new export restrictions on seven rare earth materials used in manufacturing and placed new restrictions on specific U.S. companies, including two poultry suppliers and 11 defense companies.

The Chinese Finance Ministry challenged the legitimacy of the Trump tariffs. "The US action does not abide by international trade rules, severely undermines China's legitimate and lawful rights and interests, and is typical unilateral bullying," the ministry said in a statement.

Some analysts characterized the Chinese response as more restrained than it could have been, especially since the total tariff rate on Chinese imports coming into the U.S. is now 54%. "China's retaliation seems still proportional and targeted by design, focusing mainly on agricultural goods and defense contractors," said Wen-Ti Sung of the Atlantic Council's Global China Hub. "Both of which are key Trump coalition constituencies."

Nevertheless, Trump responded to China's actions on social media in fairly strident terms, saying "CHINA PLAYED IT WRONG, THEY PANICKED - THE ONE THING THEY CANNOT AFFORD TO DO!"

China is not the only trade partner announcing retaliations. On Thursday, Canadian Prime Minister Mark Carney said he is imposing a 25% tariff on all auto imports from the U.S. Carney expects to collect about $5.7 billion from the retaliatory tariffs, which he said would be used to help Canadian workers and businesses hurt by the new U.S. tariffs.

"We take these measures reluctantly," Carney said. "And we take them in ways that's intended and will cause maximum impact in the United States and minimum impact here in Canada."

Number of the Day: $9.6 Trillion

U.S. stocks have lost about $9.6 trillion in value since President Trump entered the White House in January, MarketWatch reports. More than $5 trillion of that loss has come just in the last two days - the largest two-day loss ever. As numerous commentators have noted, these massive losses are a self-inflicted economic injury, in stark contrast to earlier downturns caused by war, pandemics or other crises.

Senate Moves Ahead on GOP Budget Plan as Fiscal Experts Cry Foul

Senate Republicans are on track to pass their revised budget blueprint after voting last night to kick off debate on the plan - a key step toward their goal of enacting trillions of dollars in tax and spending cuts.

Sen. Rand Paul of Kentucky was the only Republican to oppose moving ahead with the plan in Thursday's 52-48 vote, which sets up a potential all-night "vote-a-rama" on a host of amendments before a final vote. Democrats have been railing against the Republican plan, arguing that it will help billionaires and hurt families, but they don't have the votes to block it.

What's in the Republican resolution: The Senate GOP framework, as we outlined yesterday, zeroes out the cost of permanently renewing tax cuts enacted in 2017 and set to expire at the end of this year. It also allows for another $1.5 trillion in new tax cuts and would increase the debt limit by $5 trillion. On the spending side, the resolution calls for $150 billion in additional defense funding, $175 billion for border enforcement and $20 billion for Coast Guard modernization. It calls for a minimum of $4 billion in spending cuts, far less than the roughly $2 trillion that House conservatives want.

**Budget experts warn against the plan: **Fiscal hawks have also slammed the Senate resolution, warning that it tries to hide the cost of renewing the 2017 tax cuts by dismissing it as simply an extension of "current policy."

The Committee for a Responsible Federal Budget says the plan would allow up to $5.8 trillion in added deficits over 10 years - more than the 2017 tax cuts, the 2020 pandemic response CARES Act, the 2021 American Rescue Plan Act and the 2021 bipartisan infrastructure law combined. The plan could addas much as $60 trillion in extra debt through 2055.

"It's impossible to overstate how destructive this budget proposal could become for our fiscal path and the very foundations of the budget process itself," CRFB President Maya MacGuineas said in a statement that also called the spending details "an unmitigated disgrace."

A dozen budget experts from across the policy spectrum issued a joint warning Friday about the Republican approach, which they warned can easily be gamed, destroying credible cost estimates and responsible budgeting.

"The most fundamental rule of budget enforcement is that any expected fiscal impact is counted and recognized," they wrote. "Ignoring official cost estimates to instead invent numbers breaks that rule, and no Congress has ever done so to prevent trillions of dollars of fiscal impact from ever being scored or enforced."

What's next: The vote-a-rama on potentially dozens of amendments is expected tonight, and Democrats can force an unlimited number of votes on politically fraught issues. "Senate Democrats will come to the floor to put the Republican agenda on trial before the court of public opinion," Senate Democratic Leader Chuck Schumer said. "We will explain the devastating consequences and highlight the many injustices that Republicans will inflict on people's health, on their financial security, on their children's future, and, in fact, on the very future of the American Dream itself."

Still, a final vote on the resolution itself will likely come by Saturday morning. The House will then have to take up the resolution and resolve a range of members' concerns, though action on that side of the Capitol is stalled for now due to a standoff over proxy voting for new parents.

Fiscal News Roundup

Views and Analysis