It might seem questionable for a country to impose tariffs on its biggest trading partners, especially when its economy is showing signs of shrinking.It might seem questionable for a country to impose tariffs on its biggest trading partners, especially when its economy is showing signs of shrinking.
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To an economist, it might seem questionable for a country to impose tariffs on its biggest trading partners, especially when its economy is showing signs of shrinking, the stock market is sagging, prices remain stubbornly high and consumer sentiment is downbeat.
That’s because tariffs are “a tax on goods,” as Warren Buffett describes them, adding that they are “an act of war, to some degree.” In other words, they generally increase the cost of imported goods. Companies would either try absorbing the expense, which means a drop in revenue, or pass it on to consumers, possibly triggering an upward shock in prices.
But U.S. President Donald Trump said tariffs on Canada and Mexico are scheduled to go into effect Tuesday. His administration is also insisting such levies will not increase inflation, while encouraging allies to introduce tariffs on China as well.
There has been a lot of talk about U.S. exceptionalism last year, in reference to its economic and financial markets. With the country’s slowdown in both aspects so far in 2025 — as well as its abrupt pivot away from European Union allies in foreign policy regarding Russia and Ukraine — the theme remains in 2025.
What you need to know today
Trump-Zelenskyy clash
Ukrainian President Volodymyr Zelenskyy left the White House on Friday afternoon without a deal with the U.S, following a televised explosive clash with U.S. President Donald Trump in the Oval Office. Trump found the tone and body language of Zelenskyy objectionable, the White House told CNBC. But Zelenskyy said he doesn’t owe Trump an apology, in response to a question from a Fox News anchor. After that diplomatic fiasco, Zelenskyy was welcomed warmly by British Prime Minister Keir Starmer, while Vice President JD Vance faced protestors during a ski trip in Vermont, U.S.
Bessent urges Canada to follow suit on China tariffs
U.S. Treasury Secretary Scott Bessent said in a Bloomberg interview on Friday that Mexico proposed to match the Trump administration’s tariffs on China, and urged Canada to follow suit. China’s Ministry of Commerce said Friday that it “firmly opposes” Trump’s move and vowed retaliation, if necessary. On Sunday, Bessent said tariffs are unlikely to raise inflation partly because China will “eat any tariffs.” Separately, Warren Buffett, in a new documentary, described tariffs as “a tax on goods” and “an act of war, to some degree.”
U.S. economy on course to shrink
The U.S. Federal Bank of Atlanta’s GDPNow tracker of incoming metrics is indicating that U.S. gross domestic product is on pace to shrink by 1.5% for the January-through-March period, according to an update posted Friday morning. Fresh indicators showed that consumers spent less than expected during the inclement January weather and exports were weak, which led to the downgrade.
Accelerating factory activity in China
China’s factory activity in February expanded at its fastest pace in three months, according to the Caixin/S&P Global manufacturing purchasing managers’ index, which came in at 50.8. That’s higher than the Reuters poll forecast of 50.3 and the 50.1 reading in January. The official manufacturing PMI, which came out Saturday, also showed factory activity growing in February. A figure above 50 indicates an expansion in activity.
Red February for U.S. markets
Major U.S. benchmarks climbed more than 1% Friday, but that wasn’t enough to save them from ending February in the red. The Nasdaq CompositeAsia-Pacific markets mostly rose Monday. Hong Kong’s Hang Seng IndexMixue surged more than 40% on its first day of trading.
U.S. strategic crypto reserve
Trump announced in a Truth Social post on Sunday the creation of a strategic crypto reserve for the U.S. It will include bitcoin and ether, as well as XRP, Solana’s SOL token and Cardano’s ADA, and is the first time Trump has specified his support for a crypto “reserve” rather than a “stockpile.” The former assumes buying crypto in regular installments, while the latter would simply not sell any of the crypto currently held by the U.S. government.
[PRO] Falling benchmarks, more tariffs due
All major U.S. benchmarks fell for the month in February. Heading into March, Trump’s tariffs on Canada and Mexico, and additional ones on China, will kick in on Tuesday — if he sticks to his word — and the U.S. jobs report for February comes out Friday. Here’s what else to look out for this week.
And finally…
As Trump breaks ranks with Europe, are Asia-Pacific allies next?
Just over a month into the second term of Donald Trump’s presidency, U.S. foreign policy has been upended, especially in Europe. The U.S. has aimed tariffs at neighbors, lambasted traditional allies in Europe and taken a pro-Russian stance toward Ukraine in an about-face from the previous administration.
However, “U.S.-friendly Asian elites should not assume that U.S. assets will flow from being downsized in Europe to them in Asia,” wrote Adam Garfinkle, former distinguished visiting fellow at Singapore’s S. Rajaratnam School of International Studies. Asian allies should also consider that a diminished U.S. global military footprint could make the logistics of U.S. security pledges in Asia more difficult, Garfinkle wrote.
