6 Charts on the Tariff Situation

Stocks fell Monday after President Trump’s new tariffs went live, prompting immediate retaliation from Canada and China and raising fears of an escalating trade war.

1. Markets reeled Monday as Trump's new tariffs sent shockwaves through Wall Street, causing the S&P 500 and Dow to tumble before staging a partial rebound.

2. Stocks in industries that would be hit hardest by Trump's tariffs have dropped significantly since late January, while the broader S&P 500 has remained steady.

3. The Atlanta Fed’s latest projections predict the economy will shrink by 2.8% in early 2025, the biggest drop since the pandemic, sparking fears of a "Trumpcession" as concerns grow over the administration’s trade policies.

4. Trump’s 25% universal tariff on all imports from Canada and Mexico, as well as 20% tariff on Chinese products, will impact 43% of all U.S. goods.

5. Economist Joseph Politano argues that because North American supply chains are so interconnected, tariffs on Canada and Mexico could ripple through the U.S. economy—hurting manufacturing, raising gas prices and squeezing food supplies.

5. Consumers have rushed to purchase vehicles and durable goods in anticipation of tariff-induced price increases, mirroring patterns seen during Trump’s first term.

6. Compared to its closest trade allies, the U.S. has traditionally maintained lower tariffs, according to data from the WTO.

7. The U.S. trade deficit has been growing since the 1970s, driven largely by a surge in imported manufactured goods, which hit a record $1.31 trillion in 2022—five times higher than in 1992.

Bubba’s Two Cents

In a new analysis for the Manhattan Institute, economist Joshua Hendrickson tries to “make sense of the Trump tariffs.”

Why Trump wants tariffs: To maintain but reduce the financial burdens of the U.S.’s role as the world’s monetary leader, curb national debt and rebuild American manufacturing.

What’s wrong with the current system? The U.S. dollar is the world’s go-to currency, which keeps it overvalued. That makes foreign goods cheaper but pushes jobs overseas and encourages government overspending because global demand for dollars lowers borrowing costs.

How tariffs help: The thinking is that tariffs could pressure other countries to negotiate policies that weaken the dollar, making U.S. exports more competitive and domestic manufacturing more viable. The goal is short-term pain aimed at long-term economic stability.

I think also helpful in understanding Trumponomics is this tweet from a prominent pro-Trump X user:

“…there will be an initial severe overreaction in the economy – this economy propped up with debt (generating asset bubbles) and artificially suppressed wages (as a result of illegal immigration). Markets will tumble. But when the storm passes and everyone realizes we are on sounder footing, there will be a rapid recovery to a healthier, sustainable economy.”

I have a hard time buying this strategy. In general, market driven choices are better at correcting imbalances than government-imposed fixes, and tariffs feel like playing with fire. Maybe they’re really playing 5-dimensional chess and we just don’t understand their genius, but history suggests economic storms don’t always pass the way policymakers predict.

In President Trump’s State of the Union address just now, he said we may see “a little disturbance” in the economy. Let’s hope that’s accurate, or else their administration will have touched a hot stove.