WSJ What’s News - Tariffs Thrust U.S. Economy Into Uncertain Waters

Episode Date: March 4, 2025

A.M. Edition for Mar. 4. WSJ finance editor Alex Frangos explains how investors are reckoning with President Trump’s tariffs on Mexico, Canada and China. Follow the latest market reaction. Plus, the U.S. pauses all military aid to Ukraine days after an acrimonious meeting between the countries’ leaders. And Walgreens nears a roughly $10 billion deal to go private. Luke Vargas hosts. Sign up for the WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

Want to own part of the company that makes your favorite burger? Now you can. With partial shares from TD Direct Investing, you can own less than one full share, so expensive stocks are within reach. Learn more at td.com slash partial shares. TD, ready for you. President Trump ushers in a new era of protectionism as U.S. tariffs on China, Canada and Mexico kick in.

So the big fear here is that you get more inflation, which is not what American consumers want, and you get a slowing economy. So something more along the lines of stagflation, which is everyone's least favorite situation. Plus, Washington pauses all military aid to Ukraine. And after years of struggles, Walgreens closes in on a deal to go private. It's Tuesday, March 4th. I'm Luke Vargas for The Wall Street Journal and here is the AM Edition of What's News, the top headlines and business stories moving your world today. It wasn't a bluff. President Trump's 25 percent U.S. tariffs on goods from Mexico and Canada took effect

just after midnight this morning, along with a second round of 10 percent tariffs on imports from China. Trump described the duties taken under his emergency authority as being imposed due to fentanyl smuggling over the U.S. border. And at a White House press conference, he described how he thought Mexico and Canada ought to respond. That'll start. So they're going to have to have a tariff.

So what they have to do is build their car plants, frankly, and other things in the United States, in which case they have no tariffs. I would just say this. As we wait to see if those plans are forthcoming, Canada is responding in kind. Here was Foreign Minister Melanie Jolie. Let's be clear. If Trump is imposing tariffs, we're ready. We are ready with $155 billion worth of tariffs.

That works out to around $107 billion U.S. dollars. Mexico, meanwhile, has yet to respond. But markets aren't waiting to react as investors reckon with how substantial a trade fight is in store. And here to recap what is already a very busy trading day, I'm joined by Journal Finance Editor for Europe, Alex Frangos. Alex, what reaction are we seeing from various corners of the market to these tariffs? Has anything stood out to you? Not so much surprised, but stocks are down. Obviously, that happened late yesterday in

the U.S. and that's followed up in most parts of Asia and Europe. And investors are sheltering in the safety of government bonds because there's a great deal of uncertainty about how the economy is going to absorb the impact of these tariffs if they stay in place for a long time. How safe are bonds and is that the only safe haven that we can see? Well for right now that's generally where investors turn in times like this because a lot of people are fearing that the economy is going to slow down and so that would end up with rate cuts eventually, although it's a really confusing mix because tariffs are

also inflationary. So the big fear here is that you get more inflation, which is not what American consumers want, and you get a slowing economy. So something more along the lines of stagflation, which is everyone's least favorite situation. We see the chief US economist at JP Morgan chase Michael Faroli overnight warning that if tariffs remain in effect, they could push up inflation in the coming months, March through May, firms raising prices to make up for higher imports. I guess this is not too hypothetical. We've seen how this plays out. It's not hypothetical, but it's also not really certain exactly how it will play out. And you know, there were tariffs in the first Trump term that was at a different time. Inflation was very low at the time, and it didn't really cause any additional inflation or not any worrying amount of inflation. So

the other thing that is very difficult to predict is how companies and consumers are going to respond to tariffs. It's not just as simple as, okay well we're just going to import the same things we were importing and pay a lot more tariff. They'll look for substitutions, they'll look for bringing things in from third countries to try to keep the prices low. We heard from the Canadian foreign minister there a minute ago about the country hitting back against the U.S. with tariffs of its own, a strategy that's not really a surprise. We'd heard about that coming likely for weeks. China, meanwhile, also seems to have done what many were expecting, putting tariffs

on U.S. agricultural exports, corn, chicken, soy. Surprises there at all? It's not so much surprises, but I think there was some uncertainty about how countries should respond. Basically, how do you convince Trump to take away the tariffs? If you respond, does that just make him angrier?

If you don't respond, do you look weak? So people are very attuned to how big are these tariffs? How strong are they? Are they really trying to hit back at the places in the US where there's a lot of Trump support? So that's what the Chinese did last time, going after especially agricultural areas that were very strong for Trump. So it's not a surprise, but also the details really matter. And finally, what market reactions should we be keeping an eye out for? Any corners of the market you'll be watching closely?

Yeah, I mean all of them. There's the commodity complex of just stuff that American companies need to make things. So the US counts on Canada, you know, second biggest country in the world with lots of forests for a quarter of its lumber. So if you're a home builder, or if you're just someone at home

building your deck or something, there's a pretty good chance that that lumber comes from Canada. And then there's the kind of the stock market, bond market, currency market impact, which we're starting to see in bigger moves in the last 24 hours as investors assess, is this really going to hit the economy? That was Journal Finance Editor for Europe, Alex Frangos. Alex, thank you so much.

Thank you, Luke. And for more real-time coverage of the market reaction to Trump's tariffs, check out the WSJ's live blog, which we've left a link to in our show notes. Coming up, the EU crafts an urgent plan to encourage more defense spending after the US hits pause on aid to Ukraine. That, and a look at what else is Moving Markets today, after the break. The U.S. will pause all military aid to Kiev until President Trump determines that Ukrainian President Volodymyr Zelensky is making a good-faith effort toward peace negotiations with Russia. That's according to a White House official who said Trump felt the need to show he was

serious about getting Ukraine to the negotiating table after the two leaders' public clash last week. Here was Vice President J.D. Vance on Fox News Channel's Hannity. The president is actually taking a much more realistic perspective and saying this can't go on forever. We can't fund this thing forever. The Ukrainians can't fight forever. So let's bring this thing to a peaceful settlement.

It's not clear what Washington wants from Kiev to resume arms deliveries, nor is it certain that Zelensky signing a rare minerals deal sought by the Trump administration would be enough. Analysts say the U.S. weapons cutoff will leave Ukraine less able to withstand Russian attacks, with current and former Western officials adding that Ukraine has enough weapons to keep fighting Russia at its current pace until the middle of the year. Meanwhile, EU chief Ursula von der Leyen is offering member states greater legal flexibility in their national budgets so they can urgently boost defense investments.

She said the proposal, which was announced just hours after the US military aid freeze, could generate some $840 billion in new spending should countries make use of it. We are exclusively reporting that Walgreens Boots Alliance is closing in on a deal with private equity firm Sycamore Partners that would take the struggling drugstore chain private for around $10 billion. According to people familiar with the matter, the sides are aiming to complete the deal as soon as Thursday and are discussing a price of between $11.30 and $11.40 a share in cash. Walgreens market value peaked above $100 billion in 2015, but has since shrunk as it faces a margin squeeze on its core prescription business after it doubled down on retail pharmacy, while rival CVS Health diversified into insurance and pharmacy benefits.

Walgreens shares, which are currently trading just below $11, are rising off hours. And oil prices are down after the Saudi and Russian-led group of producer countries known as OPEC Plus said it would ramp up production starting next month and continuing through September of next year. The move ends a long push by the group to prop up prices by limiting supply and comes after President Trump urged them to open the Spigots back in January. And that's it for What's News for this Tuesday morning. Additional sound in this episode was from Reuters.

Today's show was produced by Kate Bullifant with supervising producer Christina Rocca, and I'm Luke Vargas for the Wall Street Journal. We will be back tonight with a new show. Until then, thanks for listening.