The gloom may lift someday. Investors want to believe that Trump’s onslaught of import tariffs will taper off, that his purge of the federal bureaucracy will run its course — and that Trump’s economic policies will become more orderly and predictable. Maybe Trump will just start playing more golf and lose interest in upending everything.
But calmer days are not here yet, and new worries are gathering. Here’s the next set of challenges for markets and the economy.
Trump says the “reciprocal” tariffs he’s planning to unveil on April 2 will be “the big one,” as if the tariffs he has already imposed on imports from Canada, Mexico, and China — plus steel and aluminum imports from many other countries — are just a sampler. These new tariffs are supposed to be “reciprocal” because they’ll do unto other countries as they do unto us: impose the same import duties and other barriers that those countries apply to American products.
With his flair for the big reveal, Trump has only teased what might be coming on April 2.
Treasury Secretary Scott Bessent said there’s a “dirty 15” list of countries Trump will focus on most. That most likely includes countries that have a trade surplus with the United States, impose relatively high tariffs on US imports, or take other steps to keep American products out of their domestic markets. Applying those criteria generates a list of countries that includes China, the European Union, Mexico, Vietnam, Ireland, Germany, Taiwan, Japan, South Korea, Canada, India, Thailand, Italy, Switzerland, and Malaysia, according to investing firm Raymond James.
Read more: The latest news and updates on Trump’s tariffs
Some economists think these new tariffs could be a “shocker” that is more severe than what markets seem to be anticipating, with taxes of 50% or more on key product categories. Others, by contrast, hope the threat of reciprocal tariffs is more of a ploy to give Trump leverage in trade negotiations. Markets have already underestimated the severity of Trump’s tariffs.
Surely that couldn’t happen again. Right?
Everybody knows Trump is trying to slash the federal workforce, with those layoffs likely to show up in employment data during the next several months. No biggie, Trump seems to think. They’re just bureaucrats. It’s not like those are real jobs.
What about autoworkers? Are those real jobs? The Detroit Free Press reports that the autoworkers union is bracing for layoffs as car sales slow and tariffs raise costs. Wall Street is cutting thousands of jobs as Trump disruptions sow uncertainty and slow investment. Layoffs in February were the highest since the COVID-19 recession in 2020. As job losses rise, fewer people have the income to buy stuff, and the main driver of the whole US economy — consumption — downshifts. People who hear of layoffs also get worried and rein in their own spending, dinging consumption more.
Read more: Do you pay taxes on unemployment? What to expect when you file your return.
They’re doing a lot better than their American counterparts at the moment. Stocks in Germany, China, and Mexico, for instance, have outperformed the US market since Trump took office in January. The US market normally draws an outsize share of investor money from all over the world, and that demand in turn helps US stocks outperform. But that could change as Trump’s punitive trade policies and battles with (formerly?) allied nations prod investors to look for alternatives.
Germany, for instance, is in the midst of a stimulus program likely to stoke spending and domestic stock values. China plans to battle Trump’s trade war with a stimulus program of its own that has intrigued investors. “Foreign investors are now significantly overweight US equities,” Torsten Sløk, chief economist at investing firm Apollo, Yahoo’s owner, wrote on March 19. “The downside risks to the S&P 500 as a result of foreigners selling are significant.”
When Trump fired two Democratic commissioners at the Federal Trade Commission on March 18, alarms went off at other federal agencies that are supposed to be impervious to presidential meddling — including the Federal Reserve. These agencies are supposed to be independent for good reason: to prevent regulatory decision-making that directly affects the public interest for political purposes. That’s why agency heads and commissioners are typically appointed to fixed terms that don’t coincide with election cycles.
There’s a good chance the courts will reverse the two FTC firings and those commissioners will return to their jobs. But that may not stop Trump from trying to control and manipulate such agencies, and the Federal Reserve would be the biggest prize of all for Trump.
Targeted by Trump? Federal Reserve Chair Jerome Powell speaks during a news conference after the Federal Open Market Committee meeting on March 19 at the Federal Reserve in Washington, D.C. (AP Photo/Jacquelyn Martin) ·ASSOCIATED PRESS
Trump clearly thinks he should be able to control or influence the Fed, and if he had his way, he’d push interest rates considerably lower. That could unleash more inflation. But the worst damage Trump could do if he had the power would be to wreck investor confidence in an independent central bank, which, for now, is a unique pillar of strength in US markets. Presidential manipulation of the Fed ended badly when Richard Nixon did it in the 1970s. A replay in the 2020s would not yield better results.
For decades, inviolable rules and laws have made the United States the most stable investing climate in the world. Investors are starting to question whether Trump’s open defiance of those norms is creating economic liabilities. The Department of Government Efficiency (DOGE), run by Elon Musk, as one example, is refusing to pay some federal contracts, as if a legally binding obligation to pay counterparties has no validity. Trump is pushing other legal boundaries by trying to kill agencies established by Congress, defying court orders, and ignoring many procedures for changing regulations.
Investors are paying attention. “Open defiance of a court order around payments or contracts would suggest that the U.S. government is no longer subject to the economic rule of law,” investing firm Evercore said in a March 18 analysis of how illegal presidential actions might affect markets. “The erosion of market perceptions of U.S. stability and safety would carry enormous economic impacts.” If US markets lost their “safe harbor investing premium” — the built-in assumption of bulletproof legal protections — many US assets might suddenly seem overvalued.
None of this means a recession or market collapse is imminent.
Read more: What is a recession, and how does it impact you?
But analysts are consistently downgrading their outlook for the Trump economy. Bank of America warned of “a little stag-, and more -flation” on March 21 as it lowered its year-end GDP growth target from 2.3% to 1.8% and raised its inflation outlook slightly. On March 20, Goldman Sachs lowered its six-month outlook for the S&P 500 index to a small gain or none.
The “big one” could end up being more like an economic earthquake of Trump’s own making as a sequence of small tremors begin to amplify each other.
Rick Newman is a senior columnist for Yahoo Finance. Follow him on Bluesky and X: @rickjnewman.
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