Why Trump's "dumbest trade war ever" will hurt US mortgage borrowers
The Wall Street Journal’s editorial board has written a strongly worded rebuke of the taxes that President Trump is levying on Americans buying foreign goods from Canada, China and Mexico. That in itself is quite an eyebrow raiser, as the journal has long supported Republican and pro-business politics. But it’s not alone – even the Economist has called the idea just ‘plain wrong’. And those very questionable plans may also now hit mortgage borrowers hard in the pocket.
The Federal Reserve may now be compelled to delay anticipated interest rate cuts following President Trump’s latest round of tariffs on imports from Canada, Mexico, and China, economists have warned. The new levies, which include a 25% tax on Canadian and Mexican goods and an additional 10% tariff on Chinese imports, are expected to push inflation higher, potentially derailing the Fed’s plans to ease monetary policy.
Paul Ashworth, chief North America economist at Capital Economics, underscored the impact of the tariffs on inflation, stating: “The resulting surge in US inflation from these tariffs and other future measures is going to come even faster and be larger than we initially expected. Under those circumstances, the window for the Fed to resume cutting interest rates at any point over the next 12 to 18 months just slammed shut.”
Despite this, Trump remains adamant about pressuring the Fed for rate cuts, recently criticizing the central bank and its chairman, Jerome Powell, for failing to control inflation. The Fed kept its key interest rate steady between 4.25% and 4.5% at its January meeting, following a sequence of reductions last year aimed at stabilizing the economy.
Retaliatory measures and economic impact
The tariffs have already triggered retaliation from Canada and Mexico, with Canada announcing a 25% levy on $30 billion worth of American goods, including meat, cheese, and furniture. Mexican President Claudia Sheinbaum has also pledged countermeasures, further escalating trade tensions.
Adding to the economic strain, Wolfe Research analysts predict that the cost of a new car in the US could rise by as much as $3,000 due to the tariffs. The energy sector is also bracing for disruptions, as Canadian oil exports to the US will face a 10% tariff, which could drive up costs for Midwestern refiners and potentially shift supply chains toward Asia.
Trump remains defiant despite the economic concerns. Addressing the impact of his policy on Truth Social, he stated, “Will there be some pain? Yes, maybe (and maybe not!). But we will make America great again, and it will all be worth the price that must be paid.”
Global and domestic repercussions
Beyond North America, the European Union has expressed disapproval, warning of potential retaliatory actions should tariffs extend to EU goods. Trade experts suggest that legal challenges to Trump’s tariffs may emerge, questioning whether the International Emergency Economic Powers Act provides the President the authority to impose such sweeping trade measures.
Economists remain split on whether these tariffs will push the US into a recession, but many agree that they will create substantial market uncertainty. Jay Timmons, CEO of the National Association of Manufacturers, cautioned that the new tariffs “threaten to upend the very supply chains that have made US manufacturing more competitive globally.” He also emphasized that small and medium-sized businesses may struggle to absorb the resulting costs.
The Federal Reserve, which has been closely monitoring inflation and broader economic trends, now faces increased pressure to maintain its current interest rate policy. While the tariffs alone may not drive up overall inflation sharply, they will certainly raise prices for the affected goods, limiting the Fed’s ability to provide monetary relief in the near term.
With businesses, consumers, and international allies reacting to the latest trade measures, the economic landscape is shifting rapidly. Whether Trump’s tariffs achieve their intended effect of reviving American manufacturing remains uncertain, but their immediate consequence appears to be heightened inflation risks and a prolonged wait for interest rate cuts.
It also remains to be seen how long they last – Trump’s attempt to freeze federal grants last week - a move that would have hit many of his supporters hard - was rescinded just two days after it was issued. “This is an important victory for the American people whose voices were heard after massive pressure from every corner of this country - real people made a difference by speaking out,” said Sen. Patty Murray, D-Wash. “Still, the Trump administration - through a combination of sheer incompetence, cruel intentions, and a wilful disregard of the law - caused real harm and chaos for millions over the span of the last 48 hours which is still ongoing.”
New York based Senate Democratic leader Chuck said that “Americans fought back and Donald Trump backed off.”
Source CMP
By Matthews Sellers
