President Donald Trump's tariffs have already wreaked havoc on the global economy and -- whether they remain in place or not -- some of the damage may be irreversible.

The stock market is trying to make sense of it all, and struggling.

To be fair, the Trump administration isn't making it easy. The president doubled down on his trade policies in a speech to Congress Tuesday. Yet Commerce Secretary Howard Lutnick opened the door to some burgeoning optimism, suggesting tariffs on Mexico and Canada could be at least partially rolled back as early as Wednesday.

If there is relief, it could spark a significant rally for the stock market after a dismal two days -- the S&P 500 has fallen 3% so far this week, wiping out its 2025 gains.

While a reversal would be welcome, the scarring from the events of recent days will likely remain. The market's supreme confidence that tariffs were an empty threat, or a negotiating tactic, has been shattered.

The U.S. dollar may never quite be the same again, with its safe-haven status at risk. The greenback had its worst two-day stretch since December 2023 -- the opposite of what many economists expected to happen with higher tariffs.

Interest-rate expectations have shifted markedly -- traders now expect three more rate cuts this year, up from just one when Trump entered the White House. Again, the reaction goes against expectations -- as tariffs are inflationary they ought to reduce the number of cuts.

But slowing economic growth is becoming a big worry, perhaps explaining the counterintuitive moves in the dollar and rate expectations. Both may take longer to reverse quite as fast if the levies are rolled back. And, whisper it quietly, the prospect of recession has again started to rear its head.

What's happening in Europe also can't be undone quickly. Germany is planning to unleash more military spending, along with many of its continental allies, in response to Trump's actions over the war in Ukraine.

Tariffs could change in a flash but lots of the damage done in recent days may be irreparable.

-- Callum Keown

***

President Could Meet 'In the Middle' on Canadian, Mexican Levies

After provoking a fight with Canada and Mexico by imposing 25% tariffs on U.S. imports of their products, President Donald Trump could roll some of those levies back, perhaps as early as today, Commerce Secretary Howard Lutnick told Fox Business. Trump could meet them "somewhere in the middle."

   -- The tariffs wouldn't be eliminated, Lutnick suggested in the interview. 
      His comments came after Canadian Prime Minister Justin Trudeau fought 
      back with 25% tariffs on $155 billion worth of American goods: $30 
      billion immediately, and another $125 billion in 21 days. 
 
   -- Mexico's President Claudia Sheinbaum will announce her tariff and 
      non-tariff response at an event planned for Sunday. Lutnick said he had 
      been on the phone with Canadian and Mexican officials after the tariffs 
      began. Trump suggested on social media that retaliation would prompt more 
      tariffs by the U.S. 
 
   -- Moody's Ratings said that $3 trillion of trade is at risk because of this 
      trade war between the U.S. and its closest trading partners, which will 
      hit U.S. importers of consumer goods and industries that rely on imports, 
      including auto makers, construction, technology, and manufacturing. 
 
   -- American consumers could still see the effects of tariffs soon. Target 
      CEO Brian Cornell warned that shoppers could expect higher prices for 
      strawberries, avocados, and bananas within days. Best Buy CEO Corie Bary 
      also told investors price increases are "highly likely." 

What's Next: Americans could see energy costs rising, too. While tariffs on Canadian energy products are set at 10%, the U.S. imports 4 million barrels of oil a day from there. That means tariffs could impose billions of dollars of costs on consumers and businesses.

-- Janet H. Cho and Brian Swint

***

Germany Agrees Seismic Change to Transform Europe's Largest Economy

Germany has come up with a plan to boost defence spending and create a 500 billion euros ($535 billion) infrastructure fund in a potentially seismic geopolitical shift for Europe and the wider world.

   -- The leaders of the CDU and SPD parties are proposing a special fund that 
      gets around the country's so-called debt brake -- a constitutional 
      amendment that limits deficit spending. That will allow for a significant 
      increase in military spending. 
 
   -- "In view of the threats to our freedom and peace on our continent, 
      whatever it takes must now also apply to our defense," said Friedrich 
      Merz, who is expected to be Germany's next chancellor. 
 
   -- It comes after U.S. President Donald Trump's public disagreement with 
      Ukraine's President Volodymyr Zelensky, which has led Europe to rally 
      around Ukraine as Russia continues its war with the country and 
      reconsider defense spending. 
 
   -- Germany's blue-chip DAX index has outperformed U.S. indexes this year, 
      climbing more than 16% so far in 2025. German stocks jumped early 
      Wednesday after slumping in the previous session. 

What's Next: The fiscal shift is a landmark moment for Germany and could bring about a big boost for Europe's largest economy. It's also a signal that Europe feels the need to better protect itself as the world order continues to shift under the Trump administration.

-- Callum Keown and Brian Swint

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BlackRock-Led Investors Buying Panama Canal's Two Major Ports

A group of investors led by BlackRock is buying majority stakes in the two ports on both ends of the Panama Canal, though not control of the canal itself, for $22.8 billion from Hong Kong-based conglomerate CK Hutchison. The deal includes dozens of other ports worldwide.

   -- The deal comes after pressure on canal operators from President Donald 
      Trump, who has claimed without evidence that China is in charge there 
      even though the canal is managed by the independent Panama Canal 
      Authority. He has said the U.S. should retake control of the canal. 
 
   -- CK Hutchison will sell all shares in Hutchison Port Holdings and in 
      Hutchison Port Group Holdings, which hold 80% of the Hutchison Ports 
      group. BlackRock agreed to acquire 90% of Panama Ports Co., which owns 
      and operates the Balboa and Cristobal Ports in Panama. 
 
   -- Critics worry that China could use the ports for military purposes, 
      monitor ship movements with China-supplied ship-to-shore cranes, or 
      potentially sabotage the waterway, The Wall Street Journal reported. 
      Panama President José Raúl Mulino and former U.S. military 
      officials have disputed those claims. 
 
   -- Mulino said Panama would not renew membership in Beijing's Belt and Road 
      infrastructure initiative after meeting with Secretary of State Marco 
      Rubio, who had demanded free passage for U.S. Navy ships earlier this 
      month. 

What's Next: The Journal said a person involved in the deal called BlackRock's offer "a very elegant solution" to rising calls for CK Hutchinson to divest its Panama ports. Hutchison co-managing director Frank Sixt said the deal is purely commercial and unrelated to recent political news.

-- Mackenzie Tatananni and Janet H. Cho

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Why Removing Public Spending from GDP Tally Doesn't Compute

Trump administration officials are looking into potentially changing the way economic growth is measured as signs emerge that things are meaningfully slowing down. But economists say the idea -- to exclude government spending data from the overall calculation of gross domestic product -- could erode confidence in U.S. economic data.

   -- Commerce Secretary Howard Lutnick told Fox News he wanted to remove 
      government spending from the overall calculation of inflation-adjusted 
      GDP. Public spending accounted for about a quarter of GDP in the 
      government's latest fiscal year, according to estimates from the 
      Congressional Budget Office. 
 
   -- The idea comes amid worsening economic projections. The Atlanta Fed's 
      model is forecasting a 2.8% first quarter contraction after three years 
      of quarterly growth. Elon Musk, who manages President Donald Trump's 
      efficiency effort, posted on X that a more accurate GDP measure would 
      exclude government spending. 
 
   -- Neither Lutnick nor Musk fully explained the rationale for removing 
      government spending from GDP, and several economists and economic 
      researchers told Barron's on Monday that they didn't understand the 
      reasoning behind the idea. One warned it could upend confidence in U.S. 
      financial markets. 
 
   -- The current measure of real GDP is the final value of all goods and 
      services in the economy taking into account public and private spending 
      and output, said Jai Kedia, a research fellow at the Cato Institute. It 
      should be included because it is a final value of production, Kedia said. 

What's Next: Economists routinely analyze public and private consumption to determine which side drives growth. "But it doesn't mean that there would be any attractiveness in pretending part of the expenditure in the economy doesn't exist," said Brett House, a Columbia Business School professor. For more on this read here.

-- Megan Leonhardt

***

At Tesla, a 'Buyer's Strike' Is Becoming a Problem

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March 05, 2025 07:05 ET (12:05 GMT)

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