Welcome to Trump’s tariff era. It’s going to be a bumpy ride

Just about everyone thought it was a bluff. Top analysts from the biggest banks on Wall Street said it was highly unlikely. Stocks were trading like it wouldn’t happen. Some companies built contingency plans, but they weren’t exactly rushing to make changes.

But the tariffs are coming — in full force. President Donald Trump announced Saturday that a massive 25% tariff on all goods from Mexico and most imports from Canada will go into effect Tuesday. An additional 10% tariff on Chinese goods will be enacted the same day.

Trump in a message posted on Truth Social Sunday said, “We don’t need anything they have. We have unlimited Energy, should make our own Cars, and have more Lumber than we can ever use.” But America’s supply chains are reliant on its trading partners, and even for goods that could be grown or produced exclusively in the United States, the complex web of interconnected global trade cannot easily be unwound.

So the additional costs on foreign-made goods will be paid by American importers, who typically pass those costs onto retailers, who pass them onto inflation-weary consumers. That means prices will rise — although, for most items, not immediately. Businesses’ profits will be squeezed as they bear the cost burden of the tariffs or pay to adjust their carefully constructed and at times inflexible supply chains.

That’s why stocks on Monday were set to tumble. Dow futures were more than 600 points, or 1.3% lower. S&P 500 futures sank 1.5%. and Nasdaq futures were 1.7% lower.

Globally, stocks fell, too. Major European indexes were down across the board, and Asian markets closed sharply lower. Bitcoin and other cryptos tumbled, brought down by growing fears of a recession. The US dollar rose sharply.

Energy costs surged: US crude oil rose 2.3% and natural gas spiked 7%. Despite a lower 10% tariff on Canadian electricity, natural gas and oil exports to the United States, the energy industry said it will not be able to quickly or easily find alternate sources. Diesel and jet fuel costs in particular will rise, according to Angie Gildea, the US energy sector lead at accounting firm KPMG, adding costs to all shipped goods and air travel.

“Any infrastructure upgrades would not happen overnight,” Gildea told CNN. “Tariffs on Canadian oil would increase costs for US refiners, leading to price hikes for consumers.”

Auto industry stock futures were particularly hard-hit because virtually all American-made cars are manufactured at least in some part in Mexico or Canada — what was a free-trade zone. GM (GM) fell more than 6%, Jeep and Chrysler maker Stellantis (STLA) was down 5% and Ford (F) fell more than 3%.

The commentary omits to mention that other nations' protectionist policies served their own interests at the expense of US interests precisely because there was no trade war. The US trade deficit grew to startling heights of hundreds of billions of dollars annually as a result of this exploitation. Consequently, RECIPROCITY is the new policy: Respond to foreign abuse with equal measures. The profit-seeking foreigners will thereby suffer just as much as the United States has for many years. It is reasonable to assume that they will soon begin talks to negotiate "free trade" accords with the US that will benefit both sides, not just one.

It is becoming clear that this is not a "generalized" form of protectionism, but instead one that is applied specifically as a tool of political pressure. Therefore, it is worth examining the other side of the coin in light of what President Trump's administration intends to achieve:

At his confirmation hearing for Secretary of the Treasury in early January, Scott Bessent informed senators that the country should expect Trump to apply tariffs in three ways: 1) to rectify unfair trade practices, which Trump has claimed will revive the US industrial sector; 2) to increase revenue for the federal budget, which would be crucial to finance Trump's plans to increase and extend tax cuts; and 3) to use them as a tool of pressure with foreign powers instead of applying more sanctions, which Trump believes have been overused.

In various press conferences, Trump has also suggested using tariffs to boost industrial production and prevent the United States from being "ripped off" by other nations, causing enormous trade imbalances. He has proposed the concept of using a mix of tariffs and incentives, such as rapid permit approval, to incentivize companies to build their infrastructure in the United States. Since before his election victory last November, he had been announcing that: "We're going to bring back businesses," as he stated in an interview with John Micklethwait, Bloomberg's editor-in-chief, at the Economic Club of Chicago in October.

“We’re going to bring the companies back,” he assured in that interview last October. “We’re going to lower taxes still further for companies that are going to make their product in the USA. We’re going to protect those companies with strong tariffs.”

Clearly, that appears to be his current strategy, and it all depends on the impact on the countries involved and their responses.