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Perhaps yesterday you went for a walk at lunchtime and fretted about your 401(k). President Donald Trump had announced record-high tariffs on dozens of countries. Stocks had been tanking for days. You already had to look up the meaning of stagflation (high unemployment plus high inflation, yikes). And that morning had brought more dismal news: Investors were rapidly pulling out of bond markets. Bond markets! The safe zone! The place your overanxious mother would tell you to park your money! Then maybe you got back from your walk, checked the news, and saw the headlines that Trump had “paused” the tariffs or “reversed course”—for everywhere except China, whose exports were now taxed at 125 percent.
What does this mean? Is the economy stable again? Is your 401(k) safe? Is anything still predictable? To help us understand the extraordinary volatility of the past few weeks, we invite Justin Wolfers, economist at the University of Michigan, to speak with us on the latest episode of Radio Atlantic.
The following is a transcript of the episode:
Hanna Rosin: Was today real? Honestly, today just seemed like an unreal day. Truly.
Justin Wolfers: Was this week real?
Rosin: Was this week real? Exactly.
Wolfers: What day’s today, Hanna? It’s Wednesday.
Rosin: It’s only Wednesday.
Wolfers: Okay. So in 11 minutes we will have been at this for seven days in a row.
Rosin: Yeah. Yeah. What’s “this”?
Wolfers: The confused mumblings of an old man who didn’t do very well in his college economics course.
Rosin: Are you talking about the president?
Wolfers: I might be.
[Music]
Rosin: Okay. In one single day this week—I’m talking about Wednesday, yesterday—two extraordinary things happened: In the morning, we woke up to the news that investors had started rapidly selling off U.S. bonds, which worried economists because U.S. bonds are the safe haven, and it’s a very bad sign for the U.S. economy if investors no longer trust the safe haven.
And then, midday, Donald Trump made the announcement that he was gonna reverse course on tariffs. Sort of. We’ll get into it.
President Donald Trump: Well, I thought that people were jumping a little bit out of line. They were getting yippy, you know? A little bit yippy, a little bit afraid …
Rosin: Which, around lunchtime, caused the second extraordinary thing: The stock market surged. Had one of its biggest single-day jumps in history.
What is happening?
[Music]
I’m Hanna Rosin. This is Radio Atlantic. We are living in a world in which the president makes decisions with enormous global consequences and then unmakes them 24 hours later. So today we are going to try and get a handle on all this volatility.
Is it over? Are we still in it?
Wolfers: Yep. Do we still need to do levels or any of that magic?
Rosin: To help us, we have University of Michigan economist Justin Wolfers.
Wolfers: It’s been crazy, but that’s all of us, right?
Rosin: Okay. I’m just gonna tell you my experience of the day: It’s Wednesday afternoon—that’s when we’re recording. I feel like what happened today for a lot of people who track the news: You go to lunch. You’re worried about tariffs. You’re worried about what’s gonna happen. You come back from lunch, and it’s like, Trump backs down, pauses tariffs for 90 days. Is that what happened to you today?
Wolfers: Yeah. Actually, I was in my home office, and I suddenly heard this enormous belly laugh coming from downstairs.
Rosin: Your wife?
Wolfers: My better half, Betsey Stevenson, is also an economics professor, and she saw the humor in it. And it’s kind of stunning. But we’ve seen this movie before, and that’s what’s so funny.
This is what Trump did in the first term to NAFTA. The United States had a free-trade agreement with Canada and Mexico. Basically you’d had President Clinton and the leaders of Canada and Mexico get in the room and negotiate that there would be zero tariffs on everything. But each leader was allowed a couple of little asterisks because there were a few politically sensitive groups in each country.
Trump comes along, rips the whole thing up, and says, I need a better deal. Now, just to be crystal clear, it’s very hard to get tariffs below—they were effectively zero percent before. It’s very hard to get them below zero percent. So he caused a trade war with Canada in the first term. And then basically came back with what we would say is a rebranded NAFTA. For all intents and purposes, it’s exactly the same, and he declares a win.
What just happened? He launched us headlong into a trade war with every country on Earth. Now says, Oh, they all wanna negotiate. Now, here’s the really important thing to understand, Hanna:…
Read More: Trump Didn’t Actually Undo Tariffs