By Jacob Sonenshine

Consumers, business owners, and even the stock market are worried President Donald Trump's tariffs will cause a recession. Wilbur Ross, his former commerce secretary, disagrees.

The stock market has been surprised that Trump made tariffs his first order of business (they'd been hoping for tax cuts and deregulation). The potential impact on both growth and inflation is the likeliest reason the S&P 500 has dropped 9% from the record close reached in late February.

Trump has reportedly considered announcing a 20% universal tariff on all goods from trading partners, causing costs to spike for a significant chunk of goods. The U.S. imported almost $2 trillion of goods from China, the European Union, Mexico, and Canada last year, according to the U.S. Chamber of Commerce, just over 6% of a close to $30 trillion U.S. economy.

Ross, 87, contends that investors are overreacting, especially in their belief that Trump is OK with causing a slowdown in the U.S. "I don't think he believes that what he's doing is likely to cause a recession," Ross says. "I don't think that word is in his mind right now."

Ross notes that tariffs don't exist in a vacuum. Just the threat has encouraged "onshoring," or plans to move manufacturing back to the U.S. from abroad, a positive for the domestic economy. And that's before considering Trump's planned tax policy, which can stimulate growth. "Those items are partial offsets [to tariffs]," Ross says. "You have to look at his economic policy as a totality. Tariffs are a big part of it, but they're by no means the only thing, nor are they the only thing that will influence whether we'll have a recession."

Offsets to the tariffs are already happening. Taiwan Semiconductor, for instance, plans to invest $100 billion to build a plant in Arizona, while Eli Lilly is investing almost $30 billion into U.S. drugmaking capacity. More should follow, spurring hundreds of billions of investment dollars. These projects will add jobs as well, which ultimately is what Trump is after, Ross says. "The truth is in many cases tariffs are necessary to motivate them [companies] to move production," he adds.

Ross also believes that Trump is closer than Wall Street appreciates to enacting stimulative tax policy. He noted that, without any action, personal tax rates are set to increase, which Trump doesn't want. Trump would also like to make money earned through tips and social security tax-free, while companies that produce goods at home could see a slightly lower tax rate. Ross says Trump hopes his entire slate of policies will boost economic activity, lifting the government's tax revenue, and helping it finance the cost.

Enacting tax changes is feasible because Trump has more Republican support in the Senate now. Changes could even happen by September: Representatives start planning for their midterm elections come the fall, so Trump may want to get a move on tax policy beforehand, especially if he has the votes to do it. "He's much stronger now than he was in the first term," Ross says. "He's more popular, he has control of the Republican party."

The risk is that onshoring won't unfold quickly enough to offset the tariffs, which are hitting sentiment hard. In the past few weeks, business and consumer confidence have deteriorated, given the uncertainty about how much money businesses should invest and people should spend. In the near term, the downbeat vibe could cause the economy to unravel before the full economic boost from onshoring takes hold. But Ross believes that the resulting onshoring will boost the economy, if not now, then in the medium-term.

Ross acknowledges that the breadth of policies don't necessarily make sense together. Trump's platform is all about U.S. economic strength, yet he imposes tariffs. He also wants low interest rates, but tariffs, in the short-term, bring prices higher. So the policies require careful coordination and planning, Ross says. Trump delegates the deep analysis and practicalities to his cabinet, including current Commerce Secretary -- and career investment banker -- Howard Lutnick.

"He certainly delegates details," Ross says. "Trump tends to think in bold and broad terms rather than in extremely minor terms. But you can't expect this president, or a president, to know and focus on very little nuances on something as complicated as tariffs."

Let's hope those nuances work out.

Write to Jacob Sonenshine at jacob.sonenshine@barrons.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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April 01, 2025 17:47 ET (21:47 GMT)

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