President Trump is standing by his pledge to enact a 25% tariff on most goods imported from Canada and Mexico. Doug Holtz-Eakin, president of the American Action Forum and a former director of the Congressional Budget Office, argues that Wall Street may be underestimating just how damaging those tariffs could be to all three nations. He tells Catalysts Anchor Madison Mills and Siebert chief investment officer Mark Malek why in the video above.
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There isn't a hard date yet that says we're in a recession, so it's not now. But, uh, everybody has marked down their forecasts to something that looks like 1% or lower. And we haven't seen the real impact of tariffs yet. We haven't seen the imposition of the reciprocal tariffs and how large they are. Uh, I think people are underestimating the damage that comes from 25% tariffs on Canada and Mexico. This is a unified economic entity in North America, ripping it apart with that tariff policy will do tremendous damage to all three economies. I think that's the one that really hasn't been priced correctly, and, um, you know, I think it would be just a fundamental policy error for the president to go there.
Doug, the market is still really clinging to any hope of a negotiation and of a rollback of every single tariff that gets announced. Do you think that the market is right in holding onto that hope?
No. Um, I think there are different kinds of tariffs. Uh, if you look at autos, uh, pharmaceuticals, lumber, chips, uh, steel, aluminum, uh, those are, uh, national security-related tariffs in the president's view. The purpose is to get domestic manufacturing and to move the factories onshore. Those are permanent, I think, from the perspective of the Trump administration. Canada, Mexico, uh, maybe there's a negotiation there that makes those go away, but the president has yet to enunciate a goal. Like, what is it that he's trying to accomplish with those tariffs? What would be a successful negotiation? So, a little wait and see there, and as I said, they're very damaging. Uh, the reciprocal tariffs, um, you know, country by country, you might go around and get a deal to lower those tariffs, but that's a long process. So, I think it would be a mistake to think this is a transitory, you know, blip on the tariff front. They're here, they're damaging, and they're going to have an impact on the US economy.
Yeah, I'm curious, you know, what are your thoughts in terms of how that, the mechanic works, right? Does it start from the inflationary effects of those tariffs? So, consumers will stop buying, uh, or is it going to be first, is it going to sort of hit the corporate world that's going to struggle with margin compression, and then they might sort of slow down their spending and their hiring and all that type of stuff. These are the areas where we historically have seen have been the catalysts, if you like, for these recessions. How are you seeing that?
Well, a traditional business cycle in the United States starts with a downturn in business fixed investment. The only exception to that's the pandemic. And so, I'd watch the business sector very carefully. I think the uncertainty has already taken a toll. We got a pretty weak capital goods order for February, uh, you know, ex transportation and defense was down three tenths of a percent. That's a warning sign in my view. Uh, I'd keep a close eye on the business community. It's not going to help when households, you know, see the market go down and get cautious. We've seen sentiment decline. And if they get a big price increase on a sensitive category like gasoline, uh, then you've got both the business and the household sector heading in the same direction. That's a recession.
