President Donald Trump has downplayed the recent stock market slump despite economic warning signs looming on the horizon. The S&P 500 index has lost roughly $5 trillion since its February 2025 high, primarily due to fears of an escalating trade war. Economists attribute the downturn to Trump’s erratic approach to tariffs with trading partners like Canada and Mexico.
This chaotic trade agenda has created significant uncertainty for consumers, investors, and businesses. A recent report indicated that US economic policy was “tilting away from growth,” putting the chances of a US recession at 40%, up from 30% at the start of the year. Moody’s Analytics has also revised its probability of a US recession from 15% to 35%, citing the adverse impact of tariffs.
Despite these signs, the Trump administration appears unfazed. On March 4, Trump defended his use of tariffs to make America rich again, acknowledging there would be a “little disturbance” but downplaying its significance.
Trump’s tariffs and economic consequences
The White House has since suggested that further disturbances may be necessary to achieve Trump’s trade agenda, which aims to bring manufacturing jobs back to the US. Stephen Miran, chairman of Trump’s Council of Economic Advisers, argues that the long-term goal is to reform the global trading system and put American industry on the fairer ground. He identifies the overvaluation of the US dollar as a key issue, which makes American manufacturing exports less competitive and has cost American jobs.
While tariffs are viewed as a tool for leverage in trade negotiations, Miran also believes they can raise foreign tax revenues, thereby maintaining low tax rates on American citizens. However, this approach faces criticism from economists like Steven Englander of Standard Chartered Bank, who points out contradictions in the administration’s approach, such as the simultaneous desire for a weaker dollar and reduced trade deficit, which are typically opposing outcomes. Englander highlights the challenge of navigating these contradictory goals and notes that the Trump administration’s path for reconfiguring the global trading and financial systems to America’s benefit is narrow and requires careful planning and precise execution.
Only time will tell whether the Trump administration can successfully manage this complex economic strategy. In the meantime, the recent turbulence in US stock prices seems to be an acceptable trade-off for the administration in their pursuit of broader financial reforms.
Image Credits: Photo by History in HD on Unsplash
