Trump the Tariff Man has struck, unsettling a ginned up Wall Street that had expected 2025 to be a year of strong economic growth and further big gains for hot AI trades such as darlings Nvidia (NVDA) and Microsoft (MSFT).
The Trump administration levied tariffs of 25% on Canada and Mexico and 10% on China on Saturday, citing issues like fentanyl and illegal immigration.
Duties on all three economic powerhouses will kick in on February 4.
“WILL THERE BE SOME PAIN? YES, MAYBE (AND MAYBE NOT!). BUT WE WILL MAKE AMERICA GREAT AGAIN, AND IT WILL ALL BE WORTH THE PRICE THAT MUST BE PAID,” President Trump warned in a Truth Social post on Sunday.
Reactions across Wall Street began to trickle in on Sunday, and it would appear economists and strategists agree on Trump’s pain shout-out.
Here are some of the most actionable insights from the Street that have crossed my inbox so far.
“Our economists expect that fully implemented tariffs would have meaningful consequences. A recession in Mexico becomes the base case. US Inflation could be 0.3% to 0.6% higher vs baseline over the next 3-4 months (putting headline personal consumption expenditures inflation at 2.9% to 3.2%) and US growth could be -0.7% to -1.1% lower versus baseline over the next 3-4 quarters (putting real GDP growth at 1.2% to 1.6%). We see a similar or larger growth drag than the 100 basis point hit to Asia and China’s growth in 2018-19. Full implemented tariffs with staying power don’t appear to be in the price of key markets: A bullish scenario for US Treasury duration, as weaker growth expectations increase demand beyond short maturities; meaningful US Dollar strength relative to Peso & Canadian Dollar; US equities may come under pressure, and services should outperform consumer goods.”
Watch: What Morgan Stanley’s CEO sees for the 2025 M&A market
“US growth is likely to take a hit as countries move away from US exports, investment falls, and employment declines. Federal receipts should increase, all else equal; some research estimates $1 trillion over the next decade. Our macroeconomic teams have estimated a 40 basis point increase in inflation and a 40 basis point drag on growth in the back half of the year.”
“Timing of Trump’s tariff announcement likely offended both Chinese government and people because the country is still on Chinese New Year holiday. Moreover, news of the tariff slap arrived in China in the morning of February 2, coinciding with this lunar year’s 5th day, which is the day for most Chinese to worship their God of Wealth with offerings and wishes. Unfortunately, Trump stole the attention with his wealth-destructing tariffs, an inauspicious development indeed. This first 10% tariff seems at least aimed to gain an upper hand in the negotiation on TikTok, or force Beijing to the table if negotiation hasn’t started.”
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