WSJ What’s News - Banks Warn of Risk to U.S. Economy Because of Tariffs

Episode Date: April 11, 2025

P.M. Edition for April 11. In earnings calls today, executives warned that President Trump’s tariffs were sending the U.S. economy into the unknown, hurting consumers and businesses. WSJ Heard on the Street columnist Jonathan Weil joins to discuss how banks are gauging what’s ahead. Plus, results of the latest consumer sentiment survey show that Americans have a pessimistic view of the economy, with the highest expectations for unemployment and inflation in years. And small U.S. businesses are looking to be the biggest losers in Trump’s trade war. We hear from WSJ senior special writer Ruth Simon about how they are weathering higher costs from tariffs. Alex Ossola hosts. See How Government Spending Is Up Even as Musk Touts Savings Sign up for the WSJ's free What's News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

Unwrap the early days of your favorite hockey stars with Tim's new retrospective rookies hockey cards featuring exclusive NHL and PWHL players and retired legends. Collect them all only at Tim's at participating restaurants in Canada for a limited time. US consumer sentiment tanks and inflation expectations rise to their highest in more than 40 years. sentiment tanks, and inflation expectations rise to their highest in more than 40 years. Plus, Wall Street sounds the alarm for economic volatility ahead because of President Trump's tariff policy. And small businesses might end up as the biggest losers of Trump's trade war. It's like every day they wake up and it's a new reality that they're trying to adjust to.

It's Friday, April 11th. I'm Alex Osala for The Wall Street Journal. This is the PM edition of What's News, the top headlines and business stories that move the world today. The U.S. economy showed fresh signs of strain today. Consumer sentiment plunged further this month as recession fears built. The University of Michigan survey, a closely watched index of consumer sentiment, nose-dived to 50.8 in April from 57 last month.

That was much lower than economists expected and is one of the weakest readings in the past decade. The share of Americans expecting unemployment to rise in the year ahead increased to the highest since 2009, and inflation expectations in the year ahead hit their highest rate since 1981. That uncertainty is hitting Wall Street, too. In earnings calls today, executives warned that President Trump's tariffs

were sending the U.S. economy into the unknown, and that the uncertainty was already hurting consumers and companies alike. For more on how banks are gauging what's ahead, I'm joined now by herd on the street columnist Jonathan Weill. Jonathan, what kinds of information are banks going to be keeping an eye on to get a sense of where things are headed? The things they're going to be monitoring are the usual things banks monitor. Are borrowers more likely to default on their credit cards, on their loans?

What's going to be happening to mergers and acquisitions and deal volumes. They're explicitly saying that they think that those will be going down. They're expecting a lot more volatility. That has a lot of tradeoffs. That can be really good for if you run a trading desk. Not so good if the volatility goes so berserk that nobody wants to trade anything anymore. And what are these banks expecting for their own finances in the next quarter? Well, the guidance that they have given is much more cautious than it was, say, three

months ago. Morgan Stanley today, they're generally bullish. That's an investment bank. It's a different type of business model than Wells Fargo or JP Morgan. JP Morgan and Morgan Stanley said they boosted provisions for possible credit losses as consumers and businesses may be unable to pay their loans. How significant is that? One of the things that JP Morgan said, their CFO in their earnings call today, said the

way these things are all about mathematical models, it's not just looking at a loan to see if that particular loan is more or less likely to default. They said that they haven't seen, at least through the first quarter, haven't seen any deterioration in the credit quality, speaking of their loan book. So we've seen some uptick in the credit losses in some of these banks but the really big move if things went haywire would be showing up in the second quarter and the answer they get about the outlook isn't necessarily very satisfying because they're in the same boat that we are. They have much more data that they can look at, but the conclusion is the same.

We don't know. All right. I guess we'll have to wait and see then. That was Heard on the Street columnist Jonathan Weil. Thank you, Jonathan. Thank you. Despite that cloudy future outlook, the volatility wasn't all bad for Wall Street. Big banks reported a pretty good first quarter today. Trading desks racked up revenue as clients looked to exit or buy

new investments during earlier market swings, gains that likely got even bigger in the past week for the banks. In the first quarter of the year, JP Morgan brought in a record $3.8 billion in equities trading revenue. At Morgan Stanley, equities revenue was up 45% to more than $4 billion. Recession warnings didn't stop U.S. stocks from ending one of their most tumultuous weeks in years on an upswing. The Dow rose about 1.6%, the S&P 500 notched gains of roughly 1.8%, and the NASDAQ closed about 2% higher. For a better understanding of what tariffs mean for the stock and bond markets, you can

listen to a bonus episode of WSJ's Take on the Week coming out today. And the regular episode of Take on the Week will be out on Sunday. Chris Krause, a managing director and portfolio manager at PIMCO, one of the world's largest bond managers, will join the podcast with a pulse check of consumer health. Coming up, small companies account for one-third of U.S. imports. What happens if they can't absorb the higher costs from Trump's tariffs? That's after the break. Okay, Martin, let's try one. Remember, big.

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The Ford It's a Big Deal event. Visit your Toronto area Ford store or ford.ca today. Businesses of all sizes are struggling with President Trump's new tariff regime, but small US businesses are looking to be the biggest losers. According to the Census Bureau, small and mid-sized companies account for $868 billion or roughly one-third of annual U.S. imports. And though they're much smaller than global giants like Apple and Nike, these businesses

also rely on overseas factories and goods that now carry steep tariffs, which threaten their bottom line. WSJ Senior Special Writer Ruth Simon joins me now with more. Ruth, why do tariffs affect small businesses more than larger businesses? There are a whole bunch of reasons. They operate with smaller cash cushions. They typically have thinner profit margins. They're less diversified, both in terms of the goods they offer and where those products

are made, and they just don't have the economic muscle of big companies to try to push back hard and get their suppliers to accept some of those tariff increases to negotiate for better deals. They also have fewer people just to deal with all these issues. So for companies that have imports that are affected by these tariffs, what are they doing about it? They're scrambling. Some of them will have to pass on price increases to their customers, but they're struggling to figure out what those tariffs are and what's going to stick and what isn't.

And so it's hard for them to make any big moves. Some small businesses I've talked to say their order volume has softened because the companies that are their customers are nervous about spending money. That was WSJ Senior Special Writer Ruth Simon. Thank you, Ruth. It's a pleasure.

["The New York Times"] President Trump has promised that tariffs would lead to a renaissance in American manufacturing, that they'll bring good-paying jobs to U.S. communities. I'm joined now by Lauren Webber, who covers workplace issues and employment for the Journal. Lauren, do tariffs actually do that? Lauren Webber So history tells us no, and for that we can look at Trump's first term, where he also imposed tariffs on China and some other countries. Manufacturing jobs did not grow, and we actually lost jobs that time around mainly because

other countries put on retaliatory tariffs, largely on agricultural products, so we lost a lot of agricultural jobs. Those were partially offset by subsidies that the government paid to farmers to try to keep people employed. But no, manufacturing jobs were not created. LESLIE KENDRICK Are there certain sectors that are potentially more likely to move their operations to the U.S.? AMTHA PURDALL Yeah, we've already seen some announcements that pharmaceutical makers are bringing some production back to the U.S. Products that are a little bit less complicated than, let's say, a car or an iPhone,

we will see some of that return. Now, it's possible some of those plans might have been in process long before tariffs were announced, mainly because the pandemic was such a wake-up call to companies. They needed to have supply chains where goods and raw materials would be more available closer to the United States. Like you mentioned, a number of companies have already committed to building new factories

in the US. Does the US have enough workers and workers with the right skills to staff those factories? Well, this is the rub and this is one of the confusing things about this plan. We already have labor shortages for manufacturing jobs and the jobs are more complex than they used to be. So you actually have to have more advanced skills often. They involve some amount of computer knowledge or technical skills. So the answer is no, we don't have enough workers already.

Complicating that even further is the fact that manufacturers in the US have long relied on an immigrant workforce. That's also becoming more challenging as border security has ramped up, fewer immigrants are coming into this country, employers have fewer workers to hire from. So what can companies do about this then? In many ways, the solution is something that's been going on for decades for all kinds of reasons and that is automation. So the kinds of factories that are being built or refurbished in the US these days have a lot more automation than the ones that left this country in the 1970s, 1980s, 90s when outsourcing was a big trend.

What that means is the factories need fewer workers than they would have in the past. That was WSJ reporter Lauren Weber. Thank you, Lauren. Thanks for having me. After a stint as Trump's first buddy, Elon Musk seems to be developing a rift with the president. In recent days, Musk has made veiled criticisms of Trump's trade agenda and called Peter Navarro, the president's top trade advisor, a moron. A Wall Street Journal analysis found that, despite Musk's cost-cutting efforts as the

head of the Department of Government Efficiency, the federal government is spending more under President Trump so far than it did in the same period under Joe Biden. Trump has said that Musk will leave the administration, quote, in a couple of months. And as journal columnist Tim Higgins told our Tech News Briefing podcast, Musk's departure would be welcome news to investors in Musk's companies. There is clearly an off-ramp being developed for Musk to maybe dial back some of his involvement at the White House. He is a special government employee that is a 130-day window of time.

It is clear that the White House and Musk seem to be signaling that when that comes to an end, he's going to take a step back. He has many companies to run. Tesla is facing its own challenges and Musk has been spending a lot of time at the White House complex the last few months. And investors of his companies would probably like to see him spend some of that time in Austin where Tesla is headquartered or South Texas, or SpaceX has its launch facility. For more from Tim, listen to today's episode of Tech News Briefing.

And we'll leave a link in the show notes for that article about government spending and Doja's efforts. Before we go, heads up, we made a correction to this morning's edition of the show. It originally made a reference to 150% tariffs on China, but as of this morning, US tariffs on China stood at 145%. And that's What's News for this week.

Tomorrow, you can look out for our weekly markets wrap-up, What's News in Markets. Then on Sunday, we'll be looking at America's nuclear umbrella, how countries in Europe and elsewhere aren't sure if the U.S. will offer enough protection, and how they might develop their own nuclear deterrents. That's in What's New Sunday. And we'll be back with our regular show on Monday morning. Today's show is produced by Pierre Bienneme and Anthony Bansi with supervising producer Michael Cosmides. Michael Laval wrote our theme music. Aisha El-Muslim is our development producer, Scott Salloway and Chris Dinsley are our deputy editors, and Philana Patterson is The Wall Street Journal's

head of news audio. I'm Alex Osala. Thanks for listening.