Trump Doubles Tariffs on Canadian Steel and Aluminum
US President Donald Trump has intensified trade tensions with Canada by raising tariffs on steel and aluminum imports from 25% to 50%. This decision, announced via his Truth Social platform, cites rising electricity costs in Ontario as a key factor. The move has sent shockwaves through the stock market, raising fears of an economic downturn and prompting concerns among investors about the future of Trump’s trade policies.
Immediate Market Reaction
The announcement of the tariff increase led to an immediate drop in the US stock market, reflecting investor anxiety over the potential for an economic slowdown. Following two weeks of market declines fueled by Trump’s tariff threats, the president is under pressure to reassure investors that his trade policies will foster economic growth rather than lead to a recession. Trump is scheduled to address the Business Roundtable, a group of top corporate executives, later today. While he has previously promised lower corporate taxes to stimulate domestic manufacturing, his expanding tariff policies could effectively act as a tax increase on businesses.
The stock market’s reaction indicates a lack of confidence in Trump’s economic strategy, placing him in a challenging position as he balances protectionist trade measures with his pro-business image. The S&P 500 index fell by 2.7% on Monday, erasing all gains made since his 2024 election victory, and continued to decline in early Tuesday trading.
Economists Warn of Recession Risks
Concerns about the impact of Trump’s tariffs on inflation and economic growth are growing among economists. Former Treasury Secretary Larry Summers, now a Harvard economist, has estimated the likelihood of a US recession at 50%. He noted that the focus on tariffs has led to decreased demand and rising prices, creating a scenario where inflation and economic downturn fears coexist. Goldman Sachs has also revised its US growth forecast for 2025 down from 2.2% to 1.7% and slightly increased the probability of a recession to 20%. The firm indicated that the White House might reconsider its approach if economic conditions worsen.
Despite defending his aggressive trade policies as a means to encourage companies to relocate factories to the US, Trump acknowledged the possibility of a recession during a recent Fox News interview. He described the current economic transition as significant and time-consuming but expressed optimism about its long-term benefits.
White House Highlights Job Creation Efforts
In response to the market turbulence, the White House has attempted to emphasize the positive aspects of the tariff policies. Late Monday, officials pointed out that companies such as Honda, Volkswagen, and Volvo are considering new factory investments in the US. The administration claims that Trump’s policies, which include tariffs, deregulation, and increased energy production, have prompted industry leaders to commit to creating thousands of new jobs.
However, the broader impact of these tariffs on job creation remains uncertain. While the US economy added 2.2 million jobs in 2024, the effect of new job creation attributed to tariffs appears relatively minor in comparison. As the situation develops, the administration faces the challenge of balancing its trade policies with the realities of market reactions and economic forecasts.
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