We are at war. A trade war, that is. With China and—less explicably—Canada and Mexico. Donald Trump’s 25 percent tariffs on goods from Mexico and Canada went into effect on Tuesday morning. This week, the administration also introduced an additional 10 percent tariff on Chinese imports.
Canada has responded with 25 percent tariffs targeting around $100 billion of U.S. goods. China retaliated too, blacklisting 15 U.S. companies and slapping 15 percent tariffs on American chicken, wheat, corn, and cotton, and 10 percent on other food. Mexican president Claudia Sheinbaum has said she is prepared to respond with levies of her own.
But Trump hasn’t backed down. “Please explain to Governor Trudeau, of Canada, that when he puts on a Retaliatory Tariff on the U.S., our Reciprocal Tariff will immediately increase by a like amount!” he said on Truth Social. (Though shortly after that post, Commerce Secretary Howard Lutnick hinted at some tariff relief for America’s neighbors.)
Whatever comes next, the chaos has been terrible news for markets.
U.S. stocks tumbled Tuesday, wiping out all of the markets’ gains since Trump’s return to power. The tariffs come at a moment of growing economic unease. U.S. consumer confidence dropped more quickly last month than at any point in the last four years. And while it’s true that Trump’s protectionist instincts are well-known—tariff, he said last year, is “the most beautiful word in the dictionary”—these new measures are more extreme than any he has imposed before.
To help make sense of this extraordinary economic news, I called Larry Summers, who served as Bill Clinton’s Treasury secretary from 1999 to 2001 and as director of the National Economic Council under Barack Obama. You may also remember that Summers made headlines four years ago as a lonely Democratic voice warning that Joe Biden’s big-spending agenda would have disastrous inflationary effects. Unfortunately, he proved to be right. So I wanted to ask him whether Donald Trump’s tariffs might be equally disastrous.
Here’s our conversation, lightly edited for clarity and length.