Trump Tariffs Fuel Recession Fears

(Reuters)
By Yuval Rosenberg and Michael Rainey

Happy Monday? Are you ready for another wild ride? Here's the latest.

Trump Threatens Even Higher Tariffs on China as Recession Fears Grow

The trade war started by President Donald Trump's imposition of new tariffs on countries around the world sent stocks on another rollercoaster ride Monday, with the Dow Jones Industrial Average dropping 349 points, or 0.9%, and the S&P 500 falling 11 points, or 0.23%. Stocks swung dramatically throughout the day, with the S&P down 4.7% at one point and the Dow recording a record intraday move of 2,595 points from low to high, as investors speculated on the future of Trump's tariff program.

Rumors about a possible 90-day pause in the tariffs, first suggested by investor and Trump supporter Bill Ackman, briefly gave traders hope that the trade war may ease, but the White House dismissed the notion as "fake news." Instead of retreating or pausing, Trump doubled down, threatening to slap another 50% tariff on Chinese imports in response to retaliatory tariffs announced by China last week.

"If China does not withdraw its 34% increase above their already long term trading abuses by tomorrow, April 8th, 2025, the United States will impose ADDITIONAL tariffs on China of 50%, effective April 9th," Trump said on his social media platform. "Additionally, all talks with China concerning their requested meetings with us will be terminated!"

Wall Street worried: Investors are expressing growing concern about the Trump tariff war. Larry Fink, the CEO of investment giant BlackRock, said Monday that CEOs of major companies suspect that the U.S. economy has already entered a downturn.

"Most CEOs I talk to would say we are probably in a recession right now," Fink said at the Economic Club of New York. "One CEO specifically said the airline industry is a proverbial bird in a coal mine - canary in the coal mine - and I was told that the canary is sick already."

In his annual letter to shareholders, JPMorgan Chase's CEO Jamie Dimon said that Trump's tariff policies threaten to harm the U.S. economy in both the short and long term. "The recent tariffs will likely increase inflation and are causing many to consider a greater probability of a recession," Dimon wrote. In the longer run, "If America, for whatever reason, becomes a less attractive investment destination, the U.S. dollar and the economy could suffer if foreigners sold their U.S. assets," he added.

Dimon also expressed concern that U.S. trading partners could turn to China or Russia in response to Trump's actions. "America First is fine," he wrote, "as long as it doesn't end up being America alone."

Meanwhile, economists at Goldman Sachs lowered their growth outlook and raised the odds of a recession possibly occurring over the next 12 months.

"We are lowering our 2025 Q4/Q4 GDP growth forecast to 0.5% and raising our 12-month recession probability from 35% to 45% following a sharp tightening in financial conditions, foreign consumer boycotts, and a continued spike in policy uncertainty that is likely to depress capital spending by more than we had previously assumed," the Goldman economics research team wrote in a note titled "Countdown to Recession," released Sunday.

The Goldman outlook assumes the tariffs that are scheduled to take effect on April 9 will raise the overall U.S. tariff rate by 15 percentage points. However, the tariffs could push the level up 20 points, and if they do so, as currently scheduled, "we expect to change our forecast to a recession," the analysts wrote.

House Republicans Divided Over Senate Budget Plan

While the world watches markets melt down and trillions of dollars in value evaporate because of President Trump's trade war, congressional Republicans are pushing ahead with the rest of Trump's agenda. The Senate adopted a revised budget framework in the wee hours of Saturday morning, voting 51-48 to advance the process the GOP is using to enact a package of tax and spending cuts combined with border security, defense and energy priorities.

The resolution aims to make permanent Republicans' 2017 tax cuts and allows for $1.5 trillion in additional tax cuts. It also would raise the debt limit by $5 trillion. House GOP leaders want to vote on the measure this week - before lawmakers leave for a two-week holiday break - but the plan faces resistance from conservatives on several fronts.

Two Republican senators voted against the plan: Sen. Susan Collins of Maine, the chair of the Appropriations Committee, opposed it because of concerns about possible cuts to Medicaid, one of the ways Republicans may offset the cost of extending their 2017 tax cuts. "I'm concerned about the instruction to the House Committee for $880 billion - the Energy and Commerce Committee in the House, which has jurisdiction over Medicaid, because I don't see how you can get to that amount without cutting Medicaid benefits," Collins told reporters.

Conservatives push for cuts: Some House conservatives quickly came out against the plan, concerned that it might not result in significant spending cuts. The resolution provides differing instructions for the House and Senate. It requires Senate committees to come up with just $4 billion in spending cuts, far less than the minimum of $1.5 trillion in cuts required on the House side. Senators had pushed for that lower floor, insisting that it would give them the flexibility they need to move ahead while also saying that they continue to target steeper cuts. The Senate also used an accounting tactic called a "current-policy baseline" that would zero out the official cost of some $4 trillion in renewed tax cuts.

Both chambers must adopt the same budget outline to unlock the special reconciliation process that would allow Republicans to bypass the Senate's 60-vote threshold and enact their plan with a simple majority.

House Budget Committee Chairman Jodey Arrington, a Texas Republican, slammed the Senate resolution after the weekend vote: "The Senate response was unserious and disappointing, creating $5.8 trillion in new costs and a mere $4 billion in enforceable cuts, less than one day's worth of borrowing by the federal government. It also sets a dangerous precedent by direct scoring tax policy without including enforceable offsets."

Hardline Rep. Chip Roy said in posts on X that the Senate plan didn't do enough to force spending cuts and he would vote against it. "The Senate is making very clear it has little intent to reduce spending," he wrote.

Rep. Andy Harris of Maryland, the chairman of the House Freedom Caucus, told Fox News that he'd vote against the resolution at this point. "I still think that we should just ask the Senate to begin crafting their reconciliation bill, and then if they deliver on their promise of deficit reduction, then I'm fine with their budget resolution," he said.

Spreading more SALT? Some Republicans from blue states have also rejected a proposal to raise the cap on the deductibility of state and local taxes to $25,000 from $10,000. "$25,000 is woefully insufficient and does not provide the needed tax relief our constituents deserve," Rep. Mike Lawler of New York wrote on X. "Any tax bill that does not fix the cap on SALT will not have my vote."

Rep. Nick LaLota, also of New York, had a similar message: "$25k is not a serious offer and would not result in a deal."

Raising the limit would be expensive, though, reportedly costing hundreds of billions of dollars for each $10,000 increase, making it harder to find the savings that fiscal hawks demand. Critics also note that lifting the limit would primarily benefit high-income earners.

Johnson makes his pitch: In a letter to colleagues on Saturday, House Speaker Mike Johnson kicked off what's likely to be an intense wrangling effort. He called for unity and reminded lawmakers that the Senate-passed blueprint did not change the House reconciliation instructions that were approved in February.

"Adopting the Senate's amendment to the House resolution will allow us to finally begin the most important phase of this process: drafting the reconciliation bill that will deliver on President Trump's agenda and our promises to the American people," he wrote, adding that the differences in the Senate plan would not prevent House Republicans from achieving their goals. "We have and will continue to make it clear in all discussions with the Senate and the White House that-in order to secure House passage-the final reconciliation bill must include historic spending reductions while protecting essential programs."

Johnson said that once the House adopts the Senate's amended budget resolution, committees will start work on the reconciliation bill, with a goal of passing the "one big, beautiful bill" by Memorial Day.

"With the debt limit X-date approaching, border security resources diminishing, markets unsettled, and the largest tax increase on working families looming, time is of the essence," he added. "As President Trump said, 'Every Republican, House and Senate, must UNIFY.'"

The bottom line: Republicans hold a slim 220-213 majority in the House, meaning they can only afford to lose a few votes - and that there's likely to be plenty of arm-twisting and negotiating required before the vote, expected Wednesday. But will House conservatives really buck Trump to protest this plan at a time when they are eager to show progress and build some momentum?

Quote of the Day: Medicaid Popularity

"There's really not a political appetite out there to go after Medicaid to pay for tax cuts. Medicaid has touched so many families that people have made up their minds about what they don't want to see cut."

− Pollster Bob Ward of the opinion research firm Fabrizio Ward, speaking to Politico about a new survey of attitudes toward Medicaid. The survey found that a majority of voters - including two-thirds of swing voters - oppose cutting the federal health program for low-income Americans. That could be bad news for Republican lawmakers who are looking at Medicaid cuts to achieve $880 billion in savings to help pay for their agenda of major tax cuts, enhanced border security funding and increased defense spending.

"I think you'd find support for getting rid of waste and fraud," said Ward, whose partner, Tony Fabrizio, was Trump's 2024 campaign pollster. "But the whole idea that we're going to take away people's health insurance and that's not going to be a political problem for us, I don't know where that comes from."

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