Markets (and the world) on edge as Trump’s tariff deadline approaches
A self-imposed Feb. 1 deadline by Donald Trump for a first round of tariffs on Canada, Mexico, and China looms in less than two days as economic observers and world leaders try to plan amid the uncertainty.
On Thursday afternoon, Trump reiterated his plans to put a 25% tariff on imports from Mexico and Canada, repeating his warning against America’s top U.S. trade partners. But even then he added to the uncertainty by saying some provisions remain undecided.
“We may or may not,” Trump told reporters at the White House about whether the tariffs would apply to oil. “We’re going to make that determination probably tonight.”
It was the latest in a series of comments in recent days from the president and his commerce secretary pick that have offered little clarity, leaving many in wait-and-see mode.
The uncertainty could already be weighing on business decisions, according to Charles Schwab’s Kevin Gordon, citing the effects of last weekend’s 10-hour trade war with Colombia that ended as quickly as it began.
Read more: The latest news and updates as Trump’s tariff deadline approaches
“That nature of policy-making is what causes companies to maybe take a step back and halt their spending,” he said during a live conversation on Yahoo Finance.
Trump’s last round of trade tensions and brinksmanship in 2018 and 2019 also saw business spending slow materially, he added.
President Donald Trump speaks to reporters Thursday at the White House Thursday about the mid-air crash between American Airlines and a military helicopter in Washington. (Celal Gunes /Anadolu via Getty Images) · Anadolu via Getty Images
Leaders in Canada and Mexico have expressed confusion and frustration about what they can do this time around, with Trump promising 25% tariffs on them as soon as this Saturday over issues of migration and illegal fentanyl.
China could also be in line for 10% duties over those issues.
Each utterance from Trump’s administration has been closely watched this week, but the comments have sometimes offered little clarity.
Commerce secretary nominee Howard Lutnick even offered material for both sides of the debate.
Lutnick — who is set to be Trump’s top trade official if he is confirmed — began his Senate confirmation hearing this week by saying “I prefer across the board” duties and specifically cited why he thinks they are preferable when dealing with countries like Mexico.
But then later in response to a different question he reminded that the Trump administration has a clear short-term off-ramp, calling this weekend’s possible duties “separate” from overall plans.
He also said if places like Mexico take action to shut their border to staunch migration and illegal drugs then — at least for now — “there will be no tariffs.”
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Mexico’s President Claudia Sheinbaum during a press conference at the National Palace in Mexico City on January 28. (ALFREDO ESTRELLA/AFP via Getty Images) · ALFREDO ESTRELLA via Getty Images
Another back-and-forth came on Monday following a Financial Times report that newly confirmed Treasury Secretary Scott Bessent is pushing a market-friendly plan that could see Trump’s plan for universal tariffs start at a lower level of 2.5% and then rise gradually.
But Trump himself immediately poured cold water on the idea when speaking to reporters on Air Force One.
The lack of clarity has left a wide array of officials, from Fed Chairman Jerome Powell to the president of Mexico, in wait-and-see mode.
“We are going to be watching carefully,” Powell offered Wednesday. The central banker added that the range of possibilities remain “very, very wide” and that it’s not yet known precisely how any duties would filter through to US consumers.
As for Mexican President Claudia Sheinbaum, she was asked about 25% tariffs on her country this week and offered, “We don’t expect it will happen … but if it does, we have our plan.”
Likewise, Canadian Prime Minister Justin Trudeau warned Wednesday that his government is preparing a strong response if the US imposes tariffs on his nation.
Economists have projected that Trump going forward with his tariff plans for the two nations in full — and keeping them in place — could push both into a recession.
As for markets and the US economy, Deutsche Bank chief US economist Matthew Luzzetti offered in a live interview with Yahoo Finance Thursday that Trump going forward on Canada and Mexico would “tend to dent growth but also lift inflationary pressures this year.”
“They’re in waiting mode,” he added of Powell and the Fed’s possible monetary policy measures to counteract the duties.
And if things weren’t uncertain enough, Tobin Marcus of Wolfe Research offered in a new note Thursday that economic observers also have to weigh duration when looking at these tariff threats — especially if Trump moves forward on Canada or Mexico.
He wrote that this wave of threats — put forth over drug and migration issues — “clearly fall into the ‘negotiation tool’ bucket, which we think makes it much less likely that Trump will tolerate significant economic pain for an extended period in this case.”
But Marcus, like many on Thursday, had no certainty on what to expect this weekend, though he underlined that Trump and his team are determined to put tariffs in place at some point.
“On China, as with the global tariffs,” he wrote, “our mantra remains ‘big but slow.'”
Ben Werschkul is Washington correspondent for Yahoo Finance.
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