LEILA FADEL, HOST:
President Trump's trade war is sending shockwaves around the world and rattling investors here at home. Stocks briefly rallied yesterday based on a rumor Trump might pause some of the new tariffs but fell again once the White House denied there would be a pause, which means import taxes are set to go even higher starting tomorrow. NPR's chief economics correspondent Scott Horsley is here to talk through this trade war. Good morning, Scott.
SCOTT HORSLEY, BYLINE: Good morning, Leila.
FADEL: So if all of these tariffs do go into effect, what is that going to mean for businesses and shoppers in the U.S. and around the world?
HORSLEY: It's likely to mean both higher prices and slower economic growth. We've seen a lot of forecasters warn that this could tip the United States into recession. Certainly, other countries that rely on exporting to the U.S. are looking at a big economic slowdown. That's why markets have nosedived all around the world in recent days and why investors are so desperate for any sign that maybe there's an off-ramp here. Now, Trump did have that phone call yesterday with Japan's prime minister. The head of the European Commission Ursula von der Leyen says her side is willing to make a deal. But as things stand right now, products from the E.U. are going to be slapped with a 20% tariff tomorrow. Japanese goods are facing a 24% tariff, and imports from China could be looking at tariffs of over 100%.
FADEL: Now, the president called on the Federal Reserve to cushion the fallout by lowering interest rates. How likely is that?
HORSLEY: If we do fall into recession and see a spike in unemployment, the Fed will probably have to lower interest rates. But that's not where we are right now. In fact, the jobs report we got last week showed a stronger labor market than many forecasters had expected. And, of course, we're still not out of the woods on inflation. Prices are climbing faster than most people would like, and these high tariffs could push prices even higher. Federal Reserve Chairman Jerome Powell warned he and his colleagues could end up caught in a tug of war between higher unemployment and higher inflation.
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JEROME POWELL: It's difficult for a central bank because higher unemployment would call for speeding up the economy and higher inflation would call for slowing it down.
HORSLEY: Right now, the Fed is not inclined to cut interest rates and speed the economy up. It's more likely to keep rates elevated to avoid rekindling inflation. But if we do start to see a lot of layoffs as these tariffs kick in, then that balancing act could change.
FADEL: Could there be some economic benefits of the trade war if it brings other countries to the negotiating table?
HORSLEY: Yeah, we'll have to wait and see. There is some truth to the president's complaint about other countries making it hard for the U.S. to tap into their markets. Although, in many cases, the tariffs that Trump is levying in response exaggerate the scale of those trade barriers. Supporters say the president is merely employing hardball negotiating tactics, but critics have a different view. Former Treasury Secretary Larry Summers, for example, describes Trump's tactics here as predatory, especially when tariffs are used to bully some of America's closest allies.
LARRY SUMMERS: I think this is a moment, with all the threats in the world, when alliances are very important. And when we engage in the kind of threatening behavior we have engaged in, we make things much more dangerous in an already dangerous world.
HORSLEY: Summers told me recently that he had been disappointed there was not more vocal pushback from businesses and political leaders unhappy with the president's approach. A lot of people have been cowed by Donald Trump. We have started to hear some of that pushback this week from people like JPMorgan Chase CEO Jamie Dimon and hedge fund manager Bill Ackman. And if stock prices fall a lot further or if other prices start to climb because these tariffs, more people may feel empowered to speak out against this trade policy.
FADEL: NPR's Scott Horsley. Thank you, Scott.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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