Trump Didn’t Actually Undo Tariffs

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Perhaps yesterday you went for a walk at lunchtime and fretted about your 401(k). President Donald Trump had announced record-high tariffs on dozens of countries. Stocks had been tanking for days. You already had to look up the meaning of stagflation (high unemployment plus high inflation, yikes). And that morning had brought more dismal news: Investors were rapidly pulling out of bond markets. Bond markets! The safe zone! The place your overanxious mother would tell you to park your money! Then maybe you got back from your walk, checked the news, and saw the headlines that Trump had “paused” the tariffs or “reversed course”—for everywhere except China, whose exports were now taxed at 125 percent.

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What does this mean? Is the economy stable again? Is your 401(k) safe? Is anything still predictable? To help us understand the extraordinary volatility of the past few weeks, we invite Justin Wolfers, economist at the University of Michigan, to speak with us on the latest episode of Radio Atlantic.

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The following is a transcript of the episode:

[Music]

Rosin: Okay. In one single day this week—I’m talking about Wednesday, yesterday—two extraordinary things happened: In the morning, we woke up to the news that investors had started rapidly selling off U.S. bonds, which worried economists because U.S. bonds are the safe haven, and it’s a very bad sign for the U.S. economy if investors no longer trust the safe haven.

And then, midday, Donald Trump made the announcement that he was gonna reverse course on tariffs. Sort of. We’ll get into it.

Rosin: Which, around lunchtime, caused the second extraordinary thing: The stock market surged. Had one of its biggest single-day jumps in history.

What is happening?

[Music]

I’m Hanna Rosin. This is Radio Atlantic. We are living in a world in which the president makes decisions with enormous global consequences and then unmakes them 24 hours later. So today we are going to try and get a handle on all this volatility.

Is it over? Are we still in it?

Rosin: To help us, we have University of Michigan economist Justin Wolfers.

Rosin: Okay. I’m just gonna tell you my experience of the day: It’s Wednesday afternoon—that’s when we’re recording. I feel like what happened today for a lot of people who track the news: You go to lunch. You’re worried about tariffs. You’re worried about what’s gonna happen. You come back from lunch, and it’s like, Trump backs down, pauses tariffs for 90 days. Is that what happened to you today?

Wolfers: Yeah. Actually, I was in my home office, and I suddenly heard this enormous belly laugh coming from downstairs.

Rosin: Your wife?

Wolfers: My better half, Betsey Stevenson, is also an economics professor, and she saw the humor in it. And it’s kind of stunning. But we’ve seen this movie before, and that’s what’s so funny.

This is what Trump did in the first term to NAFTA. The United States had a free-trade agreement with Canada and Mexico. Basically you’d had President Clinton and the leaders of Canada and Mexico get in the room and negotiate that there would be zero tariffs on everything. But each leader was allowed a couple of little asterisks because there were a few politically sensitive groups in each country.

Trump comes along, rips the whole thing up, and says, I need a better deal. Now, just to be crystal clear, it’s very hard to get tariffs below—they were effectively zero percent before. It’s very hard to get them below zero percent. So he caused a trade war with Canada in the first term. And then basically came back with what we would say is a rebranded NAFTA. For all intents and purposes, it’s exactly the same, and he declares a win.

What just happened? He launched us headlong into a trade war with every country on Earth. Now says, Oh, they all wanna negotiate. Now, here’s the really important thing to understand, Hanna: Almost every country on Earth had very low tariffs as of last Tuesday. Like, 1 or 2 percent because governments all around the world have been liberalizing trade for decades now. There really aren’t many tariffs out there. That matters because if the next act of this play is the president just threatens to blow the world up and then everyone calls him and says, Let’s make a deal, the best they can do is restore back to where we were on Tuesday.

Rosin: So we’ve just gone around the world and come back to where we were. Is that what you’re saying?

Wolfers: I think that’s the end game. That’s not where we are right now. So here, I wanna be crystal clear. Everyone saw the president’s announcement: Oh my goodness. He’s getting rid of reciprocal tariffs. But he’s not. For one of our most important trading partners, China, tariffs are now up to 125 percent, and for every country around the world, they’re 10 percent, which means there’s been no change for many countries. But some of the worst excesses of what he announced before have gone away. We are still in the midst of tariff-mageddon.

Rosin: Mm-hmm.

Wolfers: And we’re still in the midst of an incredibly disruptive tariff regime.

The American average tariff rate today will be 10 times higher than it was in January. It will be roughly as high, possibly higher, than the Smoot-Hawley tariffs during the Great Depression. It will be 10 and sometimes 20 times higher than most of our trading partners, and the United States probably has no longer got the highest tariffs in the world, something we had this morning, but we will have the highest tariffs in the industrialized world. So among advanced economies—and it’s not even close.

Rosin: Got it. So what you are saying, what I understand you to be saying, is: crisis not averted. He reset our expectations in the course of that week to some absurd level and then lowered them back to what is still too dangerously high a level.

Wolfers: Yes. Now, you might then say, ’cause I know that you love to track financial markets minute-by-minute.

Rosin: Mm-hmm.

Wolfers: If we only got rid of a quarter of the tariffs, why did stocks soar on the news? And I think what’s happened is there’s been two sets of shocks over the last week. One shock is a shock to tariffs. They rose enormously. The second shock is we thought, for most of the last seven days, we’d learned how profoundly incompetent this administration was, and that the president was willing to look down the barrel of a recession and say, Let’s just keep going. And that there were no adults in the White House. This was a rollout that was laughably awful from start to finish.

Rosin: Now there was speculation that it was because of the bond market that he backed down. Can you explain what the bond market is and why it’s important?

Wolfers: Okay, so let me get to other speculations first, ’cause they may be bigger.

Rosin: Okay, go ahead.

Wolfers: The first is: The chances of recession skyrocketed.

Rosin: Mm-hmm.

Wolfers: We were—are, still are—looking straight down the barrel of a recession in 2025. That would wipe out the Republican House. I think that has a lot of people freaking out—and they should, because recessions are really, really, really bad. The second thing you saw was every time Trump moved towards tariffs, stocks fell dramatically. Every time he backed off, they rose. He’d knocked off roughly $6 trillion from the value of the U.S. stock market in the week he was going—actually might be more, so it might be a trillion a day. So realize that when Elon Musk was saving us with DOGE, he was like, saving 1 billion here, 1 billion there. This was a thousand billion every day. So that is causing a lot of pain, particularly to the Republican donor class.

And then you asked about the bond market. So things started to go crazy in bonds. So what is a bond? Well, when I go to the bank and put money in the bank, it might not feel this way, but what I’m doing is lending money to the bank. It has my money for a while, it can use it, and it’ll give it back to me when I want it back. That’s how it works for you and I. But if you want to borrow money or lend money and you’re a big corporation, what you do is to lend money to a corporation, you sell them bonds. And to borrow money, if you’re a corporation, you buy bonds, and what a bond is, is you say, Hey, can I have your money and I’ll give it back to you in 10 years with interest. U.S. government bonds—that’s how we fund the government debt—typically regarded as the safest asset in the world because the U.S. government is in charge of an amazing economy and we’d never screw things up.

Rosin: And safe is the important word here. Like, an investment advisor would tell you, Do you wanna be safe? Do you wanna rest easy? Safety, it’s our safe space.

Wolfers: It’s the only thing safer than money under the mattress.

Rosin:. Yes. Right.

Wolfers: So, because it’s safe, people are willing to lend money to the U.S. government at a low interest rate. And that actually saves all of us tons of money. ’cause the U.S. government owes a lot of money. Just, if you’ve ever seen your family mortgage and thought about What would it be if the interest rate changed a little? You’ll see it makes a huge difference to your family’s finances. That’s the same for bond yields. So what happened over the past couple of days is bond yields—so interest rates—spiked. What normally happens when the world’s in chaos is the opposite, because everyone’s worried, Oh my goodness, there’s chaos.

Let me go and buy the safe thing. Let me hide it under the covers. So how do you make sense of all of this? This is essentially the rest of the world saying, If I wanna be safe, I don’t want to be associated with America.

Rosin: Right. So the volatility, such as it is already so far, has made America a less predictable place, made the foreign investors’ appetite dip.

Wolfers: And domestic investors, too.

Rosin: Yeah. Okay.

Wolfers: And lest the bond market feel distant from listeners’ lives—

Rosin: Mm-hmm.

Wolfers: —we do, just like your family pays on a mortgage, the federal government has to pay interest on its debt, and it’s one of the biggest expenses in the federal budget. And so when the interest rate rises, we have to pay more, which means there’s less money for roads and schools and tax cuts, if that’s what—it’s real money.

Rosin: Yeah. So Justin, everything you just said, the cycle of events you just described, actually could make one feel safer because it suggests that what seemed chaotic, unpredictable, capricious is actually responding to real-world inputs. So if I’m a business owner and I’m trying to make decisions about sourcing or investments or whatever, you know, am I feeling like, Oh, the future is predictable. The president actually does respond to changes in the market when, when it gets really serious?

Wolfers: Right, so one, you should feel a little bit more relieved than you felt this morning. But this morning, what we had was a madman raising tariffs so that we had the highest tariffs in the world, essentially cutting Americans off, imposing sanctions on Americans. Cutting us off from the global economy, even as recession threats were rising, and saying, I’m gonna stay the course.

So it’s good that at some point the guy’s persuadable. That is an enormous relief. It is terrible that we just had the week we had. It’s awful that three-quarters of the tariffs are still in place and the stock market is still well below where it was when he was elected. And it’s not just that I care about your 401(k), but that stock market is essentially a bet on the future of the American economy. And people are betting we’re less healthy than we were a week ago and certainly less healthy than we were on Election Day. And there’s one more thing I wanna scare you about.

Rosin: Yeah, yeah, yeah, yeah.

Wolfers: So here’s the cycle from the first term: Trump does something dumb, markets react, Trump listens, markets go back to normal. We just saw that play out again this week. But if what happens next time is: Trump does something dumb; markets think he’s going to react and undo it, so they don’t bother freaking out. If they don’t bother freaking out, he’s not gonna undo it.

Rosin: Does anyone stand to gain from this kind of volatility? You know, he did tweet, This is a great time to buy, and some people speculated he was setting a sign to followers before juicing the market again. That’s maybe paranoid, I don’t know.

Wolfers: No, it’s not. It’s before the announcement.

Rosin: Okay. So you don’t think it’s paranoid? Yeah.

Wolfers: This is corrupt on its face. This is saying, You want to time the market, you watch me, you look at me, you listen to me. It would land anyone else in jail.

Rosin: After the break, how this might affect the chances of a recession for all of us—or the thing economists fear the most: stagflation.

[Break]

Rosin: So we’ve been through a couple of recessions, near recessions: 2008, the pandemic. The words that economists are using—depression and stagflation—why? What’s the likelihood of those? How do you think about those?

Wolfers: Right. So what we’re worried about is a recession. None of us are quite sure how deep it might be. The good news, for those looking for the silver lining, is it’s crystal clear. We’ve got the early data from the first quarter of the Trump administration, and all the data from the last quarter of the Biden administration:

It’s crystal clear that the economy’s in very good shape fundamentally. So we are hitting whatever this cavalcade of bad news is with a lot of momentum.

But the extent to which the president has undermined confidence is quite dramatic. What we have at the moment is what economists call a split between the hard data and the soft data. Soft data is when you ask people, Are you optimistic? Do you plan to make investments? Do you think unemployment’s gonna rise or fall? And when you look at those numbers, they’re terrible. They’re all at recession levels.

Rosin: That’s because of everything you’ve talked about: trust—people don’t trust. It’s unpredictability. You can’t make decisions if you’re in an unpredictable environment.

Wolfers: Look, on January 1, there wasn’t much to worry about. And on April 9, there’s a lot to worry about.

Rosin: Got it. Okay. That makes sense. That’s the soft numbers.

Wolfers: And everyone has understood that.

Rosin: Got it.

Wolfers: When you look at the hard numbers, like how many people have jobs, how much money they’re spending—they’re substantially stronger. They’re actually quite good. Now, they’re also a little more dated. We get the soft numbers before the hard numbers. So the question is Which of those two stories wins the day?

So that’s an ordinary, run-of-the-mill recession. What we’re worried about now is actually something called stagflation, which is, if you like inflation and you like recessions, two great flavors together. We call it stagflation. Stag: stagnating output, stagnating labor markets.

Rosin: Mm-hmm.

Wolfers: Flation: inflation.

Rosin: So it’s high unemployment and high inflation at the same time.

Wolfers: Terrific, isn’t it?

Rosin: And why is that every economist’s worst nightmare? Why is that the worst thing?

Wolfers: Well, do you like one bad thing at a time or two?

Rosin: Got it. It’s just because it’s the doubling of terrible outcomes. And it’s hard to know how to control that.

Wolfers: It’s very hard to know what to do, because for Jay Powell and the Fed, normally if you’ve got unemployment, you’ll lower interest rates. And if you’ve got inflation, you raise interest rates.

Rosin: Right, right, right.

Wolfers: So go to bed at night thinking to yourself, you’re not running the Fed.

Rosin: Yeah, yeah, yeah, yeah. You wouldn’t have any levers to pull, you wouldn’t know what to do, so you’re stuck.

Wolfers: Yes.

Rosin: Okay. So we know what Americans are worried about. The investing advice is always Wait it out. Just wait it out. Is that actually good advice? Are there any safe havens? If I were a smart economist, would I be doing something totally different than what the average American is being told to do?

Wolfers: Well, fortunately, if you invest in my new crypto coin, Justin Coin—

Rosin: Justin Coin.

Wolfers: —I can guarantee enormous—

Rosin: You didn’t even name it after Betsey. It’s not even called Betsey Coin.

Wolfers: You know Trump did Trump coin before he did Melania coin.

Rosin: Okay, fair, fair, fair.

Wolfers: So Betsey Coin’s coming tomorrow, for those who want the complete set.

Okay, so let me be clear about what I can say and what I can’t. So I wanna start with what I can’t say. Realize people in financial markets are paid a lot of money to keep track of what’s going on. What that means is all of the madness from earlier today is already priced in. So coming in later this afternoon and saying, Well, now that he’s backing off the tariffs a bit, I should buy stocks. No, they were a good buy before anyone else knew, but as soon as anyone knew, they were no longer a good buy.

Rosin: Right.

Wolfers: So that’s the source of the usual argument, Don’t try to time the market. It’s too hard. If someone tells you that they know which way the market’s going, the right answer is to never talk to them again.

Rosin: Mm-hmm.

Wolfers: They’re a grifter.

Rosin: So you don’t know either. Nobody knows.

Wolfers: I don’t know either. What I do know is that we live in dangerous times.

Rosin: Mm-hmm.

Wolfers: If you don’t have the stomach for that, then you wanna pull the money and put it, you know, in a low-interest savings account. Now, should you have the stomach for it? You know, here’s some good news: When risk is high, it’s usually paired with high reward.

Rosin: Okay. A last thing: Let’s say you’re not in the stock market at all. Is there any downside to what’s happening right now?

Wolfers: Is there any downside? Yes.

Rosin: You could be unemployed.

Wolfers: The economy’s on the cusp of recession. Currently, betting markets say it’s a 53 percent chance of recession this year. I don’t care about the stock market based on it being rich people’s wealth. But the stock market is two things. It’s rich people’s investments, and it’s also a betting market on the future of the economy.

So when stocks are down, that’s telling you very, very smart people in very fancy suits, running very complicated computer models who ring up all the world’s data are less optimistic about the future of American business.

Rosin: And that’s gonna trickle down to you, whoever you are.

Wolfers: That is going to affect your income, your unemployment, the inflation rate, the interest rates you pay, on and on. And so that—it’s just that it’s a signal of how the economy is going to affect your life. Now, it’s true that the stock market is not the economy. That’s an old expression people use. So you shouldn’t take what I said too far, but to the extent that the Trump tariffs are meant to have any positive effects on America, they’re meant to boost American businesses and then all the positive effects on you and I are downstream of that. So the fact that they have actually undermined the stock value of American businesses tells you that the overall effect of the Trump tariffs is going to be negative.

Rosin: Although Trump would say that’s just not yet, but you know, I know what you mean.

Wolfers: You mean Trump would say that he understands the true value of American business and the stock market doesn’t?

Rosin: Better than you do? Yeah.

Wolfers: Remember two minutes ago I said if someone ever says that to you?

Rosin: Right, exactly. Exactly. Okay. I’m gonna summarize this conversation:

It’s a teeny, teeny bit better than it was a day ago, but we are definitely not out of crisis yet. Is that fair?

Wolfers: Spot on.

Rosin: Okay. Thanks, Justin.

Wolfers: Wish I had happier news, Hanna.

Rosin: That’s okay.

[Music]

Rosin: This episode of Radio Atlantic was produced by Jinae West and edited by Claudine Ebeid. It was engineered by Rob Smierciak.

Claudine Ebeid is the executive producer of Atlantic audio, and Andrea Valdez is our managing editor.

Listeners, if you like what you hear on Radio Atlantic, remember you can support our work and the work of all Atlantic journalists when you subscribe to The Atlantic at theatlantic.com/podsub. That’s theatlantic.com/podsub.

I’m Hanna Rosin. Thank you for listening.