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By Gabe Whisnant and Sonam Sheth
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President Donald Trump acknowledged on Thursday the U.S. could experience "transition problems" as a result of tariffs. But he insisted the U.S. economy is in "very good shape," even as the stock market tumbled amid continued uncertainty over the U.S.'s trade war with China.
The Context
Wall Street has been in a frenzy since Trump rolled out and then abruptly backtracked on sweeping "reciprocal" tariffs targeting dozens of countries, including some of the U.S.'s biggest trading partners and allies.
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The broad market index was flirting with bear market territory as of Wednesday morning and the U.S. bond market started seeing a global sell-off.
On Wednesday afternoon, Trump announced that for 90 days, instead of country-specific "reciprocal" tariffs, the U.S. will impose a universal 10 percent rate on all countries except China.
Wall Street surged almost immediately, regaining some of the losses it experienced after Trump initially announced his tariffs last week.
But there was one big exception to the pause: China, the U.S.'s biggest trading partner, would face a whopping 125 percent tariff, Trump said Wednesday. By Thursday, the White House had clarified that the 125 figure was in addition to a 20 percent tariff China is already facing, bringing the total to 145 percent.
What To Know
"Again, there will be a transition cost and transition problems, but in the end, it's going to be a beautiful thing," Trump said during a Cabinet meeting on Thursday afternoon.
The meeting took place as Wall Street saw steep losses following the White House's clarification about China's 145 tariff rate, which ate away at some of the gains the market made the day before.
By midday on Thursday, the S&P 500 had dropped 5 percent, cutting into Wednesday's 9.5 percent rally. The Dow Jones Industrial Average was down 1,724 points, or 4.2 percent, as of 12:40 p.m. ET, while the Nasdaq composite had fallen 5.7 percent.
Trump also claimed during his Cabinet meeting that he "took in hundreds of billions of dollars a year from China" during his first term. Experts emphasize, however, that since companies typically react to taxes on imports by raising the prices of their goods, American consumers end up fronting most of the cost of U.S. tariffs.
The president added Thursday that he "went four years without inflation." While it's true inflation was low during Trump's first term, that's largely been attributed to the U.S.'s slow recovery following the 2008 financial crisis, the COVID-19 pandemic and the Federal Reserve raising its benchmark rate to keep inflation low.
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Trump told reporters on Wednesday that he decided to pause some tariffs because people were getting "yippy" and "queasy," particularly with respect to bond market losses.
Although Wall Street breathed a sigh of relief, analysts warned that the market would experience continued volatility because of lingering uncertainty about Trump's endgame and whether the U.S.-China trade war will escalate.
After Trump announced his 90-day pause, Goldman Sachs pulled back its recession call and downgraded the risk to 45 percent. But JPMorgan Chase remained unmoved in its 60 percent recession call.
The Wall Street giant said the pause on Trump's "draconian" reciprocal tariffs "is a positive development, all else being equal."
"However, not all else is equal" and "more shocking is the increase in China tariffs to an astounding 125%," JPMorgan economists wrote in a report obtained by Newsweek.
"Combined with the ongoing policy chaos on trade and domestic fiscal matters, along with the still-large losses in equity markets and hit to confidence, it remains difficult to see the US avoiding recession," the report said. "At the same time, China is likely to be hit very hard—likely prompting a large policy response."
What People Are Saying
Treasury Secretary Scott Bessent addressed the market's downturn during Thursday's Cabinet meeting: "The up two down one is not a bad ratio, or up ten down five. And I think, as we have talked about, as we go through the queue and settle with these countries who are going to bring us that best offers, we will end up in a place of great certainty over the next 90 days on tariffs."
Former Treasury Secretary Janet Yellen, who served under President Joe Biden, told CNN: Trump's tariffs are "the worst self-inflicted wound that I have ever seen ... imposed on a well-functioning economy."
Yellen, a professor emeritus at the University of California, Berkeley, also weighed in on what grade she would give the Trump administration. "I'm afraid I could not give it a passing grade," she said.
This is a developing news story and will be updated as more information is available.
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