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President Donald Trump appears to be walking back some of his more extreme positioning on the economy — pivoting yet again on his signature tariff agenda and renewing concerns that his haphazard approach has already done serious economic damage.
On Tuesday, Trump softened on two key issues that had been giving Wall Street nightmares: He signaled openness to easing tariffs on China, and said he has “no intention” of firing Federal Reserve Chair Jerome Powell.
But the abrupt shift in tone was yet another reminder of the turbulence emanating from the White House that could push the US, and potentially other economies, into a recession.
More damaging than the tariffs themselves is the uncertainty the White House has created, said Wendy Edelberg, senior fellow in Economic Studies at the Brookings Institution, in an interview with CNN. “And the lurching hasn’t ended. In fact, this is simply another lurch.”
After an abysmal few weeks, US stocks surged Tuesday and Wednesday — a sign of Wall Street’s relief that the president appears to be heeding warnings from CEOs and close advisers who say his 145% tariffs on China aren’t sustainable. In an Oval Office gaggle with reporters, Trump also refrained from attacking Powell.
But US stocks remain down 11% since Trump took office in January, battered by near-constant changes and mixed messaging from the White House about a tariff agenda that would fundamentally alter global trade and slam the brakes on economic growth.
Despite the recent rebound, more than $7 trillion in value has been erased from the S&P 500 since record highs were set just two months ago, according to FactSet data.
At this point, any sign that Trump is pulling back on tariffs or respecting decades of precedent protecting the Fed’s independence will land, at least temporarily, as a win for Wall Street.
“Markets are terrified about the dumb things he’s going to do, and when he doesn’t do them, they’re thrilled,” Justin Wolfers, professor of economics and public policy at the University of Michigan, told CNN.
But Wolfers and other economists expressed concern about the damage that’s already been done.
“It’s clear the economy will slow,” he said. “The question is how much.”
Forecasters broadly say there is an elevated risk of a recession this year — perhaps as high as a 50% to 70% chance. Virtually all note those odds are in flux because of Trump’s ever-shifting tariff agenda.
Even if all of the Trump 2.0 tariffs were unwound today, the US would still lose at least 1% of GDP just from the policy uncertainty, said Kent Smetters, professor of business economics and public policy at the University of Pennsylvania’s Wharton School. “We are projecting that GDP will eventually fall by 5% if all the tariffs are implemented.”
