Global trade tensions escalated dramatically on Wednesday, March 12, 2025, as both the European Union (EU) and Canada announced significant retaliatory tariffs on U.S. exports, following President Donald Trump's implementation of broad tariffs on steel and aluminum imports. Economists now express deep concerns about the potential effects of these tariffs on the U.S. economy, fearing they may stifle growth and drive consumer prices higher.
Specifically, the Canadian government articulated plans to impose new retaliatory tariffs totaling $20 billion on U.S. imports, augmenting the previously announced 25 percent tariffs initiated earlier this month. Concurrently, the EU announced it would enact retaliatory tariffs estimated to impact around $28 billion worth of U.S. goods starting April 1. This announcement from the continent's leaders came amid worries about rising inflation and the potential for declining economic growth due to the intensified trade conflict.
On the same day, inflation data released from the U.S. Bureau of Labor Statistics revealed consumer prices rose slightly less than expected, increasing by 0.2 percent month-over-month, culminating in an annual inflation rate of 2.8 percent. While the data could be interpreted as somewhat positive, it raises questions about future inflationary pressures driven as much by Trump's tariffs as by supply chain disruptions.
Ursula von der Leyen, President of the European Commission, emphasized the severity of the situation, stating, "Jobs are at stake, prices up — nobody needs this," referring to the adverse consequences of the tariffs on both sides of the Atlantic. The steel and aluminum levies introduced by the Trump administration gained backing from U.S. domestic producers; still, concerns lingered over their impact on various industries, including automotive manufacturing.
The latest tariffs are anticipated to drive steel prices up by approximately 16 percent compared to the previous year, exerting additional financial pressure on industries reliant on these materials. The implementation date for these tariffs coincided with setbacks for automakers already grappling with rising costs due to other Trump policies.
American automakers and observers within the industry expressed fears about the potential ramifications of Trump's trade practices. Some executives had hoped for negotiations to facilitate the acquisition of U.S. Steel by Nippon Steel, but Trump confirmed last month his opposition to the deal, emphasizing the necessity for U.S. Steel to remain within American ownership.
Reflecting these dynamics were comments from Ryan Sweet, the chief U.S. economist at Oxford Economics, who noted the concerning trend of consumer pessimism: "Expectations about financial stability have deteriorated considerably, and concerns are mounting over how rising prices will restrict household spending. Those fears are mirrored by recent surveys, indicating households are bracing for persistent inflation around 3.1 percent."
Market volatility was palpable throughout March, especially following the tumultuous week preceding the announcement of the tariffs. Stocks initially saw gains after the release of the inflation report; by midweek, the S&P 500 index rose by 0.6 percent, aided by rebounds from high-tech shares like Nvidia, which surged by more than 6 percent on the same day.
Despite these short-term gains, market analysts warned about potential risk factors. Even after the bullish response, the S&P 500 briefly fell on March 11, dipping nearly 10 percent from its record high set earlier this year, effectively entering correction territory. Investors remained cautious, as tumultuous trade policies—particularly those affiliated with Trump’s protectionist tendencies—have paved the way for fear among markets.
Commenting on these developments, Warren Pies, co-founder of 3Fourteen Research, cited the need for clarity on both Federal Reserve policies and the administration's trade strategy. “We’re just waiting on some kind of policy response, either from the Fed or the administration,” Pies shared during CNBC's “Closing Bell.”
This latest chapter of U.S. trade policy has drawn mixed reactions from allies and adversaries alike. While the EU responded strongly with retaliatory promises, allies like Britain have opted for caution, refraining from immediate retaliation to protect their long-term negotiations with the U.S. government.
Impact on Consumers and Businesses
The recent data shines light on the interaction between tariffs and consumer prices, with prices for used cars increasing by 0.9 percent, contrasting the slight decline observed for new vehicles. Egg prices experienced enormous fluctuations, rising 10.4 percent during February, attributed to the persistent avian influenza crisis. This reflects broader patterns of consumer goods pricing affected by tariffs, as the shelter index saw annual gains of 4.2 percent, signaling stubborn inflation across housing markets.
The Federal Reserve is under pressure as it prepares for its upcoming March 18-19 board meeting, where officials are anticipated to keep interest rates steady. Policymakers indicated they would need additional progress on inflation before considering any rate cuts going forward. Jerome H. Powell, the Fed chair, reported no rush, indicating the need to gauge how tariffs may influence expectations and behaviors of both consumers and markets.
Looking Ahead
April holds significant importance as the EU's retaliatory tariffs come to fruition, which officials hope could compel the U.S. to reconsider its aggressive trade stance. The economic stakes are high as Trump keeps the door open for additional tariffs affecting more sectors, which could deepen consumer discomfort and deter economic growth. This growing tension reflects broader uncertainties for both consumers and investors, with stakeholders watching closely as tariffs and trade policies continue to roil markets.
The complex interplay between lowered inflation numbers and the impending trade war suggests the economic outcomes remain uncertain. The current environment creates volatile conditions for businesses planning investments and hiring, as they evaluate how the trade war’s impacts could affect their operations and profitability.