Front Burner - Trump’s global market meltdown, explained

Episode Date: April 7, 2025

U.S. President Trump’s latest and most severe tariffs have caused a bloodbath on the global markets and widespread economic anxiety.JP Morgan’s chief economist raised the odds of a global recession by the end of the year to 60 per cent, up from 40 per cent.People are looking at their jobs being eliminated in places like auto plants, and elsewhere in the manufacturing sector.Journalist Joe Weisenthal is the co-host of Bloomberg’s Odd Lots podcast. He’s here to explain the global market meltdown, and what we can expect in the coming days.For transcripts of Front Burner, please visit: https://www.cbc.ca/radio/frontburner/transcripts

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We've never seen anything like it. The markets are going to boom, the stock is going to boom, the country is going to boom. So we have had a few days now to take stock of the enormous shift in the global trading system that Donald Trump set in motion. The markets are a bloodbath. Today, Wall Street experienced the worst day since 2020. The post-election boom?

Well that's been erased. Major losses for the Dow Jones Industrial Average, the S&P 500, and the NASDAQ. The sickening reality is sinking in that a global trade war, unlike anything seen in generations, is on. JPMorgan raised the odds of a global recession by the end of the year to 60%. People are looking at their jobs being eliminated. We've already seen it in auto manufacturing. And China has now announced that it will retaliate with its own massive tariffs.

Today on the show, I'm really grateful to have Joe Weisenthal with me. Joe is the co-host of the Odd Lots podcast with Bloomberg. I find him to be a really clear and accessible communicator on these big economic issues. And so I have a lot of questions for him. Let's get right to it. Joe, thank you so much for coming on to Frontburner. Thank you so much for having me. It's a pleasure. So we are talking late Sunday afternoon. and now that you've had some time to let this all sink in a bit to see how the markets reacted, I'm just curious to know how you're thinking

about what you witnessed in the Rose Garden on Wednesday. I mean, I think it's one of the most extraordinary historical events that I've seen and ever expect to see in my entire life. The United States will implement reciprocal tariffs on other nations. It's been a long time since we even thought of that. We used to think about it a lot. We didn't think about it for many decades and you see what's happened. I've been a financial journalist for you know like 17 or 18 years and I thought the biggest event that I would ever see

was the great financial crisis. And I don't know if the effects of the, this will sort of exceed the great financial crisis, but in a way I think it's a bigger deal because I think it was just a bigger story. It was a bigger event because I don't think that there is much precedent for a president to take such an action that was so immediately going to be seen as disastrous by the market.

I do not think that a leader taking a unilateral move to at least by most people's expectations. And look, economists could be wrong. It wouldn't be the first time. But that would be so damaging to do that unilaterally is a very rare thing indeed. I take your point that it's significant largely because it's like a own goal. The people that you're talking to, when they're comparing it to 2008, are they concerned that the impact of this for regular people will be worse than what we saw then?

Yeah, you know, look, first of all, you know, this idea of like regular people, you know, is very, very vague and messy, obviously, right? Because there are people who are, you know, working in the sort of normal middle class office jobs with stock, obviously, there's a wide range of what counts as regular people. And look, obviously, you know, the great financial crisis, we saw unemployment, you know, it touched double digits, mass foreclosures, et cetera, in large part owing to the fact that, you know, policymakers were very slow to respond

to the bank run that really started in 2008. And I think actually, although we've seen this intense stock market sell off, particularly in the two days since the announcement, I think there is still a widespread belief, well, some of this is going to have to get moderated, that there's going to be some sort of rollback, etc. First of all, I don't think there's any indication of that. But I think right now, if you talk to people, there's still this sort of belief that like, oh, this is going to have to be tempered in some way. And so even the idea of like this being the new policy and it stands this way, I don't think that's been fully ingested yet.

And so therefore I don't think people are even willing to sort of come up with like a model because I think there's still a fair amount of lingering disbelief. Is there pain in the market at some point you're unwilling to tolerate this idea of a Trump putt? Is there a threshold? I think your question is so stupid. I mean, I think it's a, I don't want anything to go down, but sometimes you have to take medicine to fix something.

Could you just take me through what we've seen? Sure. Could you just take me through what we've seen in the last couple of days and just how big a deal it is and what I guess investors are essentially reacting to? I mean, we're coming off several years of very high inflation that was very politically unpopular. And the immediate first order thing is that this is going to make a basket of goods, the US imports a lot more expensive. So that is the sort of first order.

But then I would say the second order is that we have this extremely complicated, you know, global supply chains, et cetera. And so then there's this fact that like, even if a US manufacturer might in theory stand to benefit from trade protectionism, there are very few creators of anything in the US that don't rely on some sort of imported good or some sort of good that will get more expensive. On Friday, there was the news that a company, a US based manufacturer of key components for aircraft, both civilian and military,

they declared force majeure. They're trying to get out of existing contracts because of the price increases that they'll go up and they want to say, we need to either halt or renegotiate these contracts. So the second order effect, even beyond the fact that some consumer prices will almost certainly go up, is I would say a sense of complete paralysis in the business decision making that goes on for any sort of maker of anything complex that's not a face-to-face service because you just don't know the price of your key inputs.

And this is potentially deindustrialization, right? So ostensibly the goal of a lot of these policies is a reinvigoration of the United States industrial base, which is a shared bipartisan consensus. Obviously Biden and many of the Democrats believed in this too, but you have a lot of US producers who at this point are gonna to be like, we really

do not know what the rules of the road are. And so it's very hard to see like, you know, where this sort of additional marginal impulse to build up new industrial capacity comes from a point of this extreme uncertainty. The velocity of the market decline stocks fell like 10% over just two days. Trump has in the past seemed to have been really sensitive and taking cues from the market, right? He spent so much time like bragging about how it's done well under him. That's right Why why is this crash which we haven't seen? COVID aside since 2008 not seeming to affect him

At the moment and again, you and I are talking Sunday afternoon, maybe it will. Yeah. Typically leaders of any country, they want to see another stock market go up, particularly American presidents, because although not everyone in the United States owns stock, there are actually a lot of people who are in some way or another exposed to the stock market, particularly if you look at voters, et cetera. And so I think actually like part of the anxiety that people have right now is precisely

because I don't think anyone has a great answer to your question, which is like where normally you would expect to see this sensitivity or at some point, a circuit breaker, not a formal circuit breaker, but a sort of like, you know, de facto circuit breaker kicks in, and which the administration is like, oh, this is, this is not good for investors, you expect to see that, right? And because no one could that hasn't happened yet.

In fact, they keep this people from the administration talking about on the news. Well, we're not worried about short-term swings in the stock market, et cetera. That's adding to the sense of, well, we really like, this is like, this is very novel. The Americans who have put away for years in their savings account, I think they don't look at the day-to-day fluctuations

of what's happening. And in fact, most Americans don't have everything in the market. Most Americans... There is not a great answer. I mean, people are resorting to theories of political ideology and extreme reorientation because I don't think that anyone has found a conclusive answer to why the administration is so comfortable presiding over what's basically a crash in the stock market over two days.

What about the Republican Party? Can they withstand this? Look, you know, the Republican Party in the United States obviously evolves like any other political party over time. And I would say that there is a sense in which, you know, one might have thought that the Republican Party sort of, not in lockstep per se, because I actually don't think that's fair, but is in like, very close alignment with what one might call the business class or so forth. But I think like over the last several years, there has become much more, not just populist,

though that's true, but also more Trumpist specifically. And by that means, like this very clear discomfort with breaking from the president at all, because a lot of people have seen their careers essentially come to an end by being perceived as undermining President Trump specifically. And so what you have is probably a lot of Republican politicians who are very freaked out who think that the policies are not going to be good for their voters. And some of them have spoken out against tariffs. When Hot Smootley put on their tariff in the early 1930s, we lost the House and the Senate for 60 years.

So they're not only bad economically, they're bad politically. And I'm getting all kinds of reaction from businesses farmers in Wisconsin that are highly concerned about what's happening So those are the facts. It's a bold risky move tariffs are a tax on consumers And I'm not a fan of jacking up taxes on American consumers So my hope is but I think it's going to be you know remain pretty marginal I think the interesting question and there's a lot there about like could the dam ever break? I don't know the answer. I kind of am skeptical But one of the things that's going on right now

That you know one the when the Republicans won the White House the house in the Senate is like a key priority was like Okay, we have to extend the tax cuts. They were implemented under the first Trump presidency, we have to extend them further. And now, you know, there's one of the questions to my mind is there's so much chaos now happening in DC because everyone is looking at the stock market go down every day. Does the party even have the sort of internal discipline to actually follow through on what people thought were going to be table stakes? Yes, Republicans, of course, they're going to extend the tax

cuts, but in this sort of moment of turmoil, can they like just sort of keep the momentum going to like pass their legislative agenda, their fiscal agenda? I don't think it's that obvious and I don't think many people are paying that much attention to that aspect of it yet. On the 80th anniversary of the liberation of Auschwitz comes an unprecedented exhibition about one of history's darkest moments. Auschwitz, not long ago, not far away, features more than five hundred original objects, first-hand accounts and survivor testimonies that tell the powerful story of the Auschwitz

concentration camp, its history and legacy, and the underlying conditions that allowed the Holocaust to happen. On now exclusively at ROM, tickets at rom.ca. Oh Canada, a vast idyllic land filled with beavers, loons, lumberjacks and polite friendly folks. We have those things for sure, but there's a darker side to the Great White North, full of mystery, crime, the paranormal and dark history. Join me, Mike Brown and co-host Matthew Stockton, every Monday for the Dark Poutine Podcast as we tell dark stories from North of the 49th parallel, with the Ottawa Game covering more international cases. You can listen to dark poutine for free wherever you find your favorite podcasts. Joe, when you

speak to to people, yeah, like is there anybody who looks at what the administration announced last week looks at the rate of country-specific tariffs, blanket tariffs, at who got tariffed the most, and says that they understand that there's some sort of coherent and legitimate plan here. To be honest, the answer is no. I try to like find it. Look, there's a lot of people who will give defenses of rethinking how we do trade with the rest of the world. There's certainly a lot of anxiety about the degree to which China specifically dominates manufacturing. I think

there's a lot of other sort of specific areas in which certain trade policies implemented by some countries are perceived to be unfair or protectionist or what's that? That is fairly widespread. And I think that like a lot of people would say, look, like there needs to be a rethink. When you look at the actual numbers that were implemented, that were announced, the basic numbers that were implemented, that were announced.

The basic way that the White House had defended this is that if any country run to bilateral trade surplus with the United States, then that is per se evidence that they have been engaged in unfair trade practices. That is essentially what the White House said. I cannot, I have yet to come across anyone who really endorses this view or endorses fully the methodology used

to sort of counteract that. And so you only get the defenses in the most broad strokes, which is this sort of basic idea. It's like, we're getting ripped off. We needed a new deal for the American worker, et cetera. And so you get defenders in the most abstract sense. But in terms of the specific sense, I have yet to come across anything. Right. Like just as an example, so the Trump administration hit Vietnam, right? They said that Vietnam tariffed them at 90%. But like, I was looking at a chart using WTO data, and you know, they're saying that Vietnam tariffs at 5.5%.

This is exactly the point, which is that like, the Trump administration, you know, that reciprocal tariffs as a term, do you know, do not come across as like, particularly alarming, right? Oh, they tear off us. Okay, we're gonna tear them back. That idea of like, well, it's just fair, it resonates. Okay, but this is the other thing, which was that the formula that was used to establish the country by country tariff

was not actually based on any sort of formal tariff schedule. It was just this formula that was derived by the amount of the trade deficit and then as a percentage of the trading relationship between the two countries. And so to your point exactly, you know, this is not... These numbers were not based on any real numbers that were imposed policy-wise by the countries that are getting tariffed.

I don't wanna send you on like a fool's errand right now trying to anticipate how this could play out, but like, what might some scenarios be here, right? Like, so China has announced that they're retaliating now with 34% reciprocal tariffs. It's funny, I don't know anyone, you know, there's one conceivable school of thought that's like Congress. So Congress has the authority theoretically to retake the terrifying power away from the

president. I am deeply skeptical that that will happen because of what I said, how much Trump allegiance there is in the Republican Party. I could imagine something like that passing into the Senate, maybe, but I cannot see it. I think this is, again, one of the questions that everyone is asking, which is like, how does this like moderate or like, where do we like land in the sudden equilibrium, et cetera? I mean, I don't know. I actually, I mean, like I genuinely,

the only honest answer I can give you is that I don't know. And it strikes me as a very plausible that the existing tariff schedule that was announced is the new permanent tariff schedule for the U.S. trading with the rest of the world. I've heard people talk about the possibility that what he is doing here is trying to see the world in spheres of trading and that there is a scenario in which at the end of this, Canada could come out okay in terms of being some sort of protected trading block. In North America, the end goal here is really to

capture China, right? This is the funny thing, which is that you have a lot of liberal economists who share Trump's anxiety about China specifically. And I think that the, you know, so for example on the podcast recently on podcast recently on odd lots, we talked to Brad Setzer, sort of famous trade economist, and he's been talking about this for a long time, which is that there is this sort of like real imbalance between the US and China, and that the way to address that imbalance is to really build up a true sort of sophisticated, free trade block of North America and Europe. And so this is, but like, but obviously Trump has not gone down that approach. But if you want, if you were thinking of like trade in a specific, like sort of like China centric view of the world, where the rise of Chinese manufacturing

might is not something that countries want to be completely reliant on. Then you're like, all right, well, one alternative is to build this alternative trading block. One of the funny things actually is that over the weekend, we had Elon Musk, who is, you know, basically who's part of this administration. He has been calling out Peter Navarro, who is one of Trump's top trade advisors. He also said there should be no trade barriers between the US and Europe. And I'm hopeful, for example, with the tariffs that at the end of the day, I hope it is agreed that both Europe and the United States should move ideally, in my view, to a zero tariff

situation, effectively creating a free trade zone between Europe and North America. So you have a lot of people who actually accept this premise of like, okay, we need to change our relationship with China. And therefore the answer to that is to have a very robust trading block between the US, Mexico, Canada, and Europe, except for now, that's obviously not the path that the administration has taken. Yeah, they're tariffing us They're terrifying Europe. And I saw that question put to Navarro,

Peter Navarro today on one of the talk shows. And he basically responded by saying like, Elon, when he's in his doge line is great. But we understand what's going on here. Do we just have to understand? Elon sells cars and he's in Texas assembling cars that have big parts of that car from Mexico, China. The batteries come from Japan or China. The electronics come from Taiwan. And he's simply protecting his own interests as any. This scenario where the rest of the world kind of tries to carry on without the United States. Where could that leave the United States? Like I heard Commerce Secretary Howard Lutnick Sunday morning also on one of these talk shows talk about.

Remember the army of millions and millions of human beings screwing in little little screws to make iPhones. That kind of thing is going to come to America. It's going to be automated. And great Americans, the tradecraft of America, is going to fix them, is going to work on them. There are going to be mechanics. Is that even possible to do what they want to do here, which is, I guess, reshore manufacturing

in the US? And can Americans even still continue to enjoy the lifestyle that they do today if that happened? I doubt it. I doubt like, you know, look, because let's say you really like there's an argument to be made that everyone, you know, so many people have a smartphone, obviously, and a lot of the smart, almost all the smartphone assembly is done in China. And it's not crazy to worry about some of the existential risk that, you know, this core piece of like how everyone in the modern world lives is all done in one country.

You could make the argument that like, oh, we should have more of this sort of final assembly or some of the key components be outside of China. But even if you wanted to do that, you're also talking about other stuff. So it's like, okay, well, you need someone who's gonna make the toasters and the microwaves and the webcams and every other piece of electronics manufacturing.

So even if you wanted to say, somehow maybe through robotics and some labor, the US should be a source of more final assembly for gadgets and other things. Well, it's hard to imagine how you're going to do that if you also require domestic labor to be used for all of these other things that are not that. And so I find it very hard to square that soko. As we go into this week, I guess week two of this global trade war. What are you watching for?

Right. Everyone's going to watch for headlines of like, is there going to be some softening? So yeah, you know, I'm such a junkie. I'm just going to be like looking at what's happening in the stock market to see like, A, as every day, you know, if we get further selling, then there's going to be a question of like, that will even raise further the questions of like, why isn't the White House reacting to it? So I'll say one other thing, you know, there's going to be a question of like, that will even raise further the questions of like, why isn't the White House reacting to it, et cetera. I'll say one other thing, you know, there's this rates, obviously the US deficit is very high and there's been this interest in bringing down the yield

on 10 year treasuries, reducing our borrowing costs. And one way that you could reduce borrowing costs, unfortunately, I don't think it's the best way, is to have a recession. But recessions do two things. Yes, they lower interest rates, but also you cause massive job losses, massive investment losses.

So you really lose a lot of tax revenue so you blow out the deficit. So it's not even great. But then the other thing I'll add is we actually haven't seen that big of a drop in interest rates so far. So we had this major crash on Thursday and Friday, and yet the 10-year yield is still like right around 4%.

So I'm sort of also curious to see whether there's gonna be a sort of substantial flight into US treasury. As far as that hasn't happened, it's been modest people buying bonds, but there hasn't been major. And I think that should also be alarming in DC that even with such a big jump in volatility

and all these concerns about the economy, we haven't gotten this big drop in interest rates, which is ostensibly one of the goals of this administration. Is it his strategy to force the Fed to lower interest rates and that the market crash was part of that strategy? We understand the Fed is an independent agency. We respect the independence of the Fed. So the President's allowed to have an opinion But the President's allowed to have an opinion.

The President's allowed to have an opinion. But there's not going to be any political coercion over the Fed for sure. So that is his strategy, tank the markets so the Fed lowers its rights? No, no, no. Well, you just said the President's allowed to have an opinion. Is that his opinion or not? He's not trying to take the market. He's trying to deliver for American workers.

Okay. That was super helpful. Thank you. Really interesting. Thank you so much for this. Thank you for American workers. Okay, that was super helpful. Thank you. And really interesting. Thank you so much for this. Thank you for having me. I'm happy to be here. I'm happy to be here.

I'm happy to be here. I'm happy to be here. I'm happy to be here. I'm happy to be here. I'm happy to be here. I'm happy to be here. I'm happy to be here. I'm happy to be here.

All right, that is all for today. I'm Jamie Poisson. Thanks so much for listening. Talk to you tomorrow.