Clarity on Tariffs Could Bring Stability to Markets
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Even before President Trump announced his latest round of tariffs, markets were holding steady this week. That's a change from previous weeks.

Concerns about Trump's trade policies have roiled stocks as investors and analysts debated what impact potential tariffs would have on the economy. There's been a lot of uncertainty about tariffs, and at least we'll get more clarity about tariffs. Investors don't like uncertainty. Clarity is better than uncertainty. We'll talk to WSJ reporter Sam Goldfarb about the effects Trump's tariffs could have on markets after the break.

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Markets are getting a clearer picture of President Trump's trade policies, and that's beginning to put some investors at ease. But concerns persist about whether Trump's tariffs could have broader reverberations in the economy. Wall Street Journal reporter Sam Goldfarb joins me to talk about this.

Sam, walk us through how the markets have been responding to Trump's trade policies. So markets fell a few weeks ago pretty sharply. The S&P 500 fell 10%, which is known as a correction, but they've stabilized since. And they're coming down from quite a high level. So despite the decline, it's not like markets are pricing in a considerable economic slowdown, let alone a recession. So not great, but not terrible.

White House Press Secretary Caroline Leavitt has played down concerns about the market. Do analysts agree with her assertion that Wall Street will be just fine? I think there's definitely not that level of confidence on Wall Street. So far, I would say that Wall Street has been relatively fine, but there's not any kind of confidence that it will stay that way. What explanations have investors and analysts offered regarding the stock market's resilience?

Probably the number one explanation would be that investors still just don't think Trump would stick with any tariff policy that would do serious harm to the economy. They just don't think that would make sense. They think that he'll sort of scale that back.

try to use it as maybe leverage to get other countries to make concessions or just back down and lower tariffs and come up with some excuse for doing so. Whatever he goes with one day, he could change it the next. Tariffs are pretty easy for him to change unilaterally. It's not like you have to go through the painstaking process of getting legislation through Congress.

Another reason investors have gotten a little bit more optimistic recently is the idea that there's been a lot of uncertainty about tariffs and at least we'll get more clarity about tariffs and clarity is better than uncertainty. Taking a step back, how does the situation we're seeing now compare to when President Trump introduced tariffs during his first term? Well, it's just a completely different situation because in the first term, the effective tariff rate went up about two percentage points and this time gold

Goldman Sachs estimates that could go up 15 percentage points this year. They've increased their forecast for the chances of a recession over the next 12 months to 35% from 20%. So that's a pretty big increase, although still not their sense of what is most likely to happen.

I mean, there are some similarities in terms of markets were a bit jittery the first term when there was this sort of like on-again, off-again tariff talk. Markets don't like uncertainty, but yet we're talking about a potential for a much larger increase in tariffs. How have credit markets responded to these recent events?

Credit markets have generally mirrored the stock market in that corporate bond prices have fallen, but they haven't fallen super dramatically. Corporate bonds offer yields, and you can gauge how much risk investors think

a corporate bond has by comparing the yield on the corporate bond to the yield on a super safe US Treasury bond. The difference between those two is known as a spread, and those spreads have been increasing, reflecting investors' concerns that there is an increasing chance of defaults that would come with an economic downturn. However,

Those spreads, they're still very narrow by historical standards. So definitely still not pricing in a recession or anything like that. That's WSJ reporter Sam Goldfarb, and that's it for your Money Briefing. This episode was produced by Pierre Bien-Aimé with supervising producer Melanie Roy. I'm Jacob Passy for The Wall Street Journal. Thanks for listening. ♪