WSJ What’s News - Trump Goes Big With First Tariffs

Episode Date: February 3, 2025

A.M. Edition for Feb. 3. WSJ trade reporter Gavin Bade explains how President Trump settled on 25% levies on imports from Canada and Mexico, and how those two countries are responding to that opening salvo in what could become a continental trade war. Plus, WSJ finance editor Alex Frangos analyzes the market reaction to those tariffs, as well as an additional 10% levy on China. And the Trump administration issues an ultimatum on the Panama Canal during a visit to the country by Secretary of State Marco Rubio. Luke Vargas hosts. Sign up for the WSJ’s free What’s News newsletter. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey Spotify, this is Javi. My biggest passion is music. And it's not just sounds and instruments. It's more than that to me. It's a world full of harmonies with chillers. From streaming to shopping, it's on Prime. President Trump goes all in on tariffs targeting Mexico, Canada and China. We'll get the latest from Washington and analyze today's market reaction.

There's just so much uncertainty around which part of the tariffs are going to apply where, will there be exceptions for certain companies? And so the easier thing for investors to do is just to sell, buy into the safety of government bonds, and maybe wait it out a little bit. Plus, the Trump administration issues an ultimatum on the Panama Canal, and Elon Musk names more companies in a suit claiming X was subject to an illegal ad boycott. It's Monday, February 3rd. 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. President Trump is launching the opening salvo in a trade dispute with Mexico and Canada, announcing that beginning tomorrow, the U.S. will impose a 25% levy on imports from both countries for failing to stop illegal migration and the flow of drugs into the country. Trump imposed the moves under emergency economic authority never before used for tariffs, and a senior administration official said the duties would remain until the White House was satisfied with steps taken to scrub out the illicit fentanyl trade. Trump also announced an additional 10% tariff on China.

We will have more on Beijing's strategy on trade a little bit later in the show, but first I'm joined from Washington. by Wall Street Journal trade and economic policy reporter Gavin Bade. Gavin, how did we get here? You had been reporting last week that some Trump aides were looking at potential ways to dial back these threatened tariffs. But the president really did go for kind of a full package here, right? How did he arrive at that decision?

I think in the end, as one person put it to me on Sunday, Trump decided to be Trump. And it's true that even some of his more hawkish trade advisors over the past week had been pushing for some wiggle room in these tariffs, right? Maybe a grace period, maybe cutting out some specific sectors, particularly continentally important sectors like the automotive sector. In the end, Trump really took a very maximalist approach and said very, very few, if any, exemptions and these things are going to go right into effect on February 4th, so this Tuesday. So it remains to be seen how he will be satisfied to take these tariffs off, if at all. But the administration officials over the weekend really depicted a very high bar for

these countries to escape these duties Gavin there is one sort of carve out here right just a 10% tariff on energy products from Canada Compared to the 25% levy on all other Canadian imports tell us about that There was talk about cutting oil and gas and energy products out completely in part because there are a lot of US and gas and energy products out completely, in part because there are a lot of US refineries that rely on Canadian crude oil. In the end, Trump decided to levy a tariff, but just make it a 10% tariff. And he said he and his administration were very explicit that this was to limit the price impacts on American consumers, the price on oil and eventually the price on gasoline and

diesel at the pump. And so it's an interesting kind of contradiction there because they've been pretty steadfast that they don't believe these tariffs will contribute to inflation, but then they also gave a little bit of a lower levy there because of the price impacts on gasoline. What responses have we seen from Canada and Mexico to this and how are their responses going over in Washington, if we've gotten a response yet? Right after Trump announced his tariffs on Saturday, that evening we saw Canadian Prime Minister Justin Trudeau go on TV and announce that Canada would impose countermeasures on

February 4th when these tariffs go in place and then actually a second tranche of tariffs as well later in the month. He said the reason is he wants to give Canadian companies some time to find supply chain alternatives to the United States. And this could escalate further. One of the things that Trump did in these executive orders on Saturday is include so-called retaliation clauses that said, well, if Canada and Mexico end up hitting back at us, then we will actually accelerate further and make our tariffs even higher. What then about Mexico's reaction, Gavin? The country's president Claudia Scheinbaum today is set to reveal her plan to respond to tariffs.

But at least one thing evidently under consideration according to an official who spoke to the journal is what's called a carousel retaliation where you'd sort of periodically rotate the US products that are subject to tariffs. What can you tell us about how Mexico is reacting? The Mexican government throughout these negotiations has tried to take the rhetorical temperature down a little bit and indeed throughout the week we saw White House officials publicly saying that Mexico was making progress on these issues, that they thought they could really talk to this government about migration and about fentanyl drug smuggling over the border.

And you're seeing a good amount of frustration from both there and in Ottawa about they don't really know what more they need to do to please Trump and to placate him on this. It seems like he's just trying to make a point here that he's very serious. The fact that they did threaten retaliation earlier in the week, from what I'm hearing, really kind of helped get the president's back up and made him say, no, I'm going to take a maximalist approach to this thing. Right. So what comes next then?

A little later in the show, Gavin, we'll be talking about the market reaction to these tariffs. But is it possible that market reaction could have a bearing on how Trump moves going forward? Yeah. I mean, one thing that we've seen from Trump in the past is he's been very sensitive to stock market reactions to his policies, right? This term, Trump seems to be a little bit more hardened to those consequences. He was saying in the Oval Office on Friday that he expects even if there are some short-term impacts, and he did admit that that was a possibility that he thought voters, especially his voters, would accept that, you know, at least over the short term. He feels like he

has a mandate. Could it not put more pressure on lawmakers on Capitol Hill to move forward though with other economic measures that could potentially offer some possible relief, maybe tax work? With the House coming back this week, we're going to see work begin in earnest because while Republicans may be very wary to cross the president on tariffs, maybe their way of lessening inflation in their minds will be to push these tax cuts forward and complete this kind of shift in political economy that Trump is talking about from getting revenue from taxes to getting revenue from tariffs. And then the other thing to note is the president's nominee

for US Trade Representative Jameson Greer, he's going in front of the Senate Finance Committee on Thursday this week. He's going to face a lot of tough questions about this very aggressive tariff action right out of the gate. I've been speaking to the Wall Street Journal's Gavin Bade in Washington.

Gavin, thank you so much for the update. Thanks so much, Luke. Always great to be with you. Coming up, finance editor Alex Frangos joins us to discuss how markets are already reacting to tariffs, plus the rest of the day's headlines after the break. Well from a surging dollar and rising oil prices to tumbling shares in Asia and a decline in U.S. stock futures, it hasn't taken long to see the market reaction to President Trump's tariff moves.

And here to size up that response is Wall Street Journal finance editor for Europe, Alex Frangos. Alex, let's start with equity markets. Gavin telling us earlier that President Trump is sensitive to stock market reactions to his policies and we are certainly seeing a reaction. Yeah, absolutely. Investors view the start of this trade war as a moment to reassess markets had been at kind of near record highs or at record highs.

There's just also so much uncertainty around which part of the tariffs are going to apply where, will there be exceptions for certain companies. And so the easier thing for investors to do is just to sell, buy into the safety of government bonds and maybe wait it out a little bit. Alex, obviously it's very early still, but we are already seeing some corners of the market moving more, falling more than others. That would be automobile stocks and shares in Taiwan. Why?

Yeah, well, any economy that is very open to trade and involved in global supply chains is going to feel the effect Taiwan, because of its chip industry, but also its auto parts industries is very significant. And applying tariffs to Canada and Mexico strikes at the heart of this arrangement where companies, especially auto companies, are moving parts from one country to another to assemble the cars. The part is made in Taiwan, it comes to America, it gets turned into something else, goes to

Mexico, gets put into a car which is shipped back over to the US or maybe to Canada and sold there. And this supply chain has just gotten a huge storm thrown into the middle of it. And looking beyond stocks, we are seeing quite a bit of activity in currency and commodity markets today as well. Alex, what's happening there? Yeah, well, oil is going up, especially oil that's traded in the US because the US imports a huge amount of crude from Canada.

And then you're seeing these broad adjustments in currencies on the expectations that countries that are affected by these tariffs, especially China, Mexico, Canada, and eventually the European Union, as Trump foreshadowed, will have retaliatory tariffs. And this is going to cause currencies to need to adjust to the different pricing of goods and where they were last week. Alex Fragos is The Wall Street Journal's Europe Finance Editor. Alex, thank you so much. Thank you, Luke. Beijing is signaling that it sees room to negotiate following President Trump's 10%

China tariffs. Its response so far was merely to challenge them at the World Trade Organization, whose mechanism for resolving trade disputes has been disabled since Trump's first term, and we exclusively report that it is preparing an opening bid to try and head off greater tariff increases and technology restrictions from the Trump administration. According to people familiar with the matter, China's initial proposal will center on restoring a trade agreement called the Phase One Deal that was struck in early 2020 with the first Trump administration but never implemented. That deal had called for China to

increase purchases of American goods and services by $200 billion over two years, and Beijing is now preparing to discuss areas where China can buy more from the U.S. In his first overseas visit as Secretary of State Marco Rubio has told Panama that it must either curtail China's presence around the Panama Canal or face an unspecified U.S. response. Panamanian President Jose Raul Molino met with Rubio yesterday and made a significant concession to the U.S. afterward, declaring that Panama wouldn't be renewing a 2017 infrastructure agreement with Beijing and offering technical-level talks to clarify President Trump's doubts about Chinese control of the canal. Shortly after the meeting, Trump doubled down on his threats to seize the canal, which Molino

has rejected as an affront to Panama's sovereignty. He repeated this weekend that he can't negotiate control of the waterway. And Elon Musk's ex has added a raft of major brands including Nestle, Colgate, and Shell to its lawsuit claiming an ad industry coalition illegally boycotted the social media platform over changes to safety standards made by the billionaire. The suit, first filed in August, alleges the companies and the advertising trade group World Federation of Advertisers violated antitrust laws and conspired to collectively withhold billions of dollars in advertising. The companies named in the lawsuit had no immediate comment. The World Federation of Advertisers has said the lawsuit misconstrues the purpose and actions

of its responsible media efforts and is significantly draining its finances. And that's it for What's News for this Monday morning. Today's show was produced by Kate Bulevent and Daniel Bach 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.