Morning Report — Trump’s tariffs risk US economic hit

February 3, 2025

In today’s issue:

Trump: Tariffs could “pain” U.S. consumers
DOT secretary envisions FAA changes
Musk announces shutdown of USAID
Beyoncé wins Grammy’s album of the year

Canada and Mexico vowed to respond this week to President Trump’s steep new trade tariffs of 25 percent on imports while the president conceded his aggressive levies could mean economic “pain” for Americans.

Trump told reporters Sunday night that Canada and Mexico must balance their trade deficits with the U.S. to gain relief from tariffs. His numbers are unclear, since 2024 trade data for Canada suggests a fraction of the imbalance the president cites.

“We subsidize Canada to the tune of about $200 billion a year. And for what? What do we get out of it? We don’t get anything out of it,” Trump said at Joint Base Andrews near Washington. “If they want to play the game, I don’t mind, we can play the game all they want. Mexico, we’ve had very good talks with them.”

Under the guise of improved safety from illegal drugs entering the U.S., Trump on Saturday ignited a direct assault on North American neighbors while ordering 10 percent tariffs on goods from China. Thus far, Beijing has not defined the “necessary countermeasures” the government forecasts.

The criticism of Trump’s moves, which he threatened during his 2024 campaign, proved swift among allies, U.S. corporations and many economists who point to data that supports views that consumers incur the brunt of tariffs, not the countries targeted with levies.

“I think these tariffs are designed to get countries to change their behavior. … If the change comes, I think the tariffs probably go away,” Sen. Lindsey Graham (R-S.C.) told “Fox News Sunday” in defense of Trump’s trade policies.

Florida Republican Rep. Byron Donalds told NewsNation’s “The Hill Sunday” that the risks of the president’s tariffs are “worth it.”

Many Republicans are skeptical of Trump’s faith that tariffs expand U.S. revenues and strengthen the economy. But over the weekend, Republicans were largely silent.

The political worry among members of Trump’s party is that voters, who put the economy and inflation atop their lists of worries when they cast ballots last year, will rebel against Republican candidates in the next election if Trump’s levies stay put and within a matter of months begin to stoke inflated costs and undercut markets for American exports.

Trump’s tariffs and the resulting retaliatory responses could erase 1.5 percentage points from the U.S.’s gross domestic product growth this year and another 2.1 percentage points in 2026, according to estimates by EY chief economist Gregory Daco.

CNBC: Trump warns the United Kingdom and the European Union are in line for tariffs, suggesting a deal with Britain is possible.

Canada said Sunday it will retaliate with 25 tariffs beginning Tuesday on hundreds of U.S. products, such as meat, fruit, dairy products, dishwashers, pasta and tires.

The Wall Street Journal: Here’s how the tariffs will work.

Canadians are “perplexed,” Ambassador to the U.S. Kirsten Hillman told ABC’s “This Week” on Sunday. “We’re eager to help the president achieve his goals,” she added, noting that relatively little fentanyl crosses into the U.S. from its neighbor to the north. “This is not something that Canada wants to do,” she said of the retaliatory tariffs. “We love our American products.”

Mexican President Claudia Sheinbaum said she would unveil the first steps today in her government’s so-called plan B action. She said she wants to gauge reaction to her weekend offer to the White House to create a working group of security and health officials from both countries to tackle the fentanyl problem Trump referred to as the premise for his actions on strong border enforcement.

Mexico and China are the primary source countries for fentanyl and fentanyl-related substances trafficked directly into the United States.

The New York Times: Here’s what to know about Trump’s tariffs.

“I’ll tell you who the winner here is. The winner here is [Chinese President] Xi Jinping,” former Treasury Secretary Larry Summers told CNN’s “Inside Politics Sunday.”

Summers, a Democrat, said Trump may be using tariffs as leverage with trading partners, but he said the president is hurting the United States and playing into Xi’s hands.

“We’ve moved to drive some of our closest allies into his arms. We’ve weakened our own economy. And at a time when we’re calling him out for ignoring international norms, we’re legitimating everything he’s doing by violating all the international norms that we set up,” Summers added.

Meanwhile, the administration on Sunday made safety arguments to promote changes ahead at the Federal Aviation Administration (FAA) in response to recent deadly air traffic tragedies that killed 67 people near Washington, D.C., and seven in Philadelphia.

Transportation Secretary Sean Duffy, appearing on “Fox News Sunday,” said the FAA has relied for too long on “antiquated” air traffic communications and hiring policies based on equity and diversity instead of opportunity and “the best and the brightest.” It’s an argument Trump began making Thursday at the White House.

The New York Times: An FAA safety alert system was back in operation Sunday after a brief outage.

Duffy was vague about possible requests to Congress to help improve the FAA, tackle its long-running shortages of air traffic controllers and to reckon with air traffic congestion and the resulting safety risks chronicled for years at the country’s busiest airports. Congress reauthorized FAA legislation in June with $105 billion, including provisions dealing with safety and personnel.

SMART TAKE with NewsNation’s BLAKE BURMAN

It’s likely going to be an interesting week in the stock market, which now has added importance as it captures the attention of President Trump.

Just look at what we saw last week: AI chipmaker NVIDIA’s stock opened the week with a roughly $600 billion dive due to concerns over Chinese startup DeepSeek, then its CEO, Jensen Huang, closed the week with a trip to the White House and a private meeting with the president. That meeting came just one day before the White House placed a 10 percent duty on all Chinese goods.

The first tariffs in the first Trump administration occurred in January 2018. The following month was very volatile for the stock market, in part due to inflation concerns. Hello to a February once again starting off with the launch of a tariff fight. Let’s see if past performance is indicative of future results.

Burman hosts “The Hill” weeknights, 6p/5c on NewsNation.

3 THINGS TO KNOW TODAY

▪ Before the Great Recession, most Americans worked for businesses with fewer than 500 employees. Today, it’s reversed.

▪ OpenAI has developed AI technology that can gather information from across the internet and synthesize it in concise reports.

▪ Defense Secretary Pete Hegseth’s aim to replace “woke” civilian educators at U.S. military academies with military instructors poses roadblocks because of recruitment challenges.

LEADING THE DAY

A key week of confirmation hearings has left mixed fates for an assortment of Trump’s Cabinet nominees. Some face a rockier path to winning a green light from the Senate after a series of missteps. Two of the headliners — Tulsi Gabbard and Health and Human Services Secretary designee Robert F. Kennedy Jr. — ran into trouble as each tried to cajole Senate Republicans during tough hearings.

A number of Republicans emerged from Gabbard’s committee appearance last week saying they were taken aback by her responses about Edward Snowden, government surveillance and her past communications with foreign adversaries. But no GOP senator has vowed to vote against her nomination to direct the Office of National Intelligence. The Hill’s Alex Gangitano and Al Weaver report the White House now faces a decision — wait and see if any GOP senators publicly oppose Gabbard, or launch a pressure campaign akin to the efforts that helped Hegseth narrowly clear the Senate to lead the Pentagon.

FBI purge: At least six senior FBI leaders have been ordered to retire, resign or be fired by today, CNN reports, extending a purge that began last week at the Justice Department. Some were notified while Kash Patel, Trump’s pick to lead the agency, was at his confirmation hearing Thursday.

Transition officials in recent months signaled plans to push aside leaders promoted by former FBI Director Christopher Wray.

▪ The Washington Post: The Justice Department is seeking a list of potentially thousands of FBI employees who worked on Jan. 6, 2021-related cases.

▪ ABC News: Former New Jersey Gov. Chris Christie (R), a former prosecutor and a Trump critic, said fired FBI agents are civil servants, not political appointees, and will file appeals, which he says ultimately they will win.

MUSK’S TAKEOVER: Since taking office, Trump has embarked on a massive government makeover, firing and sidelining hundreds of civil servants in an effort to install more loyalists and reduce the size of the bureaucracy. Key to the operation: Tech billionaire Elon Musk, a staunch Trump ally — and $288 million megadonor — who leads the “Department of Government Efficiency” (DOGE), a White House working group tasked with eliminating waste.

Over the weekend, Musk, who remains in charge of companies such as Tesla, SpaceX and the social platform X, has wrested unprecedented levels of control of key government data centers and platforms for himself and his associates. He also claims to be sleeping in his Eisenhower Executive Office Building office, just steps from the White House. Trump offered support for Musk on Sunday night, speaking to reporters at Joint Base Andrews.

“I think Elon is doing a good job,” Trump said. “He’s a big cost-cutter. Sometimes we won’t agree with it, and we’ll not go where he wants to go. But I think he’s doing a great job. He’s a smart guy.”

In the middle of the night today, Musk announced the shutdown of the U.S. Agency for International Development in an audio-only appearance on X. Musk did not say what legal authority he thinks the White House has to shut down a federal agency without congressional approval, or how quickly the administration planned to act. He said the idea had “the full support of the president.”

“With regard to the USAID stuff, I went over [it] with him in detail, and he agreed that we should shut it down,” he said. “I actually checked with him a few times [and] said, ‘Are you sure?’” he said.

He said that Trump — who has criticized USAID as “run by a bunch of radical lunatics” — responded, “Yes.”

▪ NBC News: Senior USAID security officials were put on leave over the weekend after attempting to refuse Musk’s DOGE access to agency systems.

▪ The Hill: Democrats on Friday slammed Trump over recent news reports that he is considering merging USAID with the State Department.

▪ CNN: USAID’s website went offline without explanation Saturday as thousands of furloughs, layoffs and program shutdowns continued amid Trump’s freeze on U.S.-funded foreign aid and development worldwide.

On Sunday, Musk aides charged with running the U.S. government human resources agency locked career civil servants out of computer systems that contain the personal data of millions of federal employees, Reuters reports. The systems include a vast database, which contains dates of birth, Social Security numbers, appraisals, home addresses, pay grades and length of service of government workers, two officials told Reuters.

“We have no visibility into what they are doing with the computer and data systems,” one of the officials said. “That is creating great concern. There is no oversight. It creates real cybersecurity and hacking implications.”

The Washington Post: Musk’s influence over the Office of Personnel Management culminated in the government’s stunning proposal Tuesday offering employees an inducement to resign by Feb. 6 and continue to be paid until the end of September.

At the Treasury Department, David Lebryk, the agency’s highest-ranking career official, left after a clash with Musk allies over access to sensitive payment systems. Lebryk had been appointed acting Treasury secretary while nominee Scott Bessent was waiting to be confirmed. A small number of Treasury career officials have control over the payment systems, which are run by the Bureau of the Fiscal Service. The systems control $6 trillion annually, distributed as Social Security, Medicare, salaries for federal workers, payments to government contractors, payments to grant recipients and tax refunds.

The Musk allies who have access to the payment system were made Treasury employees, passed government background checks and obtained the necessary security clearances, The New York Times reports. Musk’s initiative is intended to be part of a broader review of the payments system to allow improper payments to be scrutinized and is not an effort to arbitrarily block individual payments, sources said. Career Treasury Department attorneys signed off on granting access.

▪ Financial Times: Musk vowed to cancel grants after gaining access to the Treasury payment system.

▪ Wired: Musk’s next cost-cutting target? The General Services Administration.

GOVERNMENT RESTRUCTURING: The Trump administration fired Rohit Chopra, the Biden-appointed director of the Consumer Financial Protection Bureau in a widely expected move. The agency is a frequent target of Republican attacks.

Dozens of Department of Education employees have been placed on paid leave as part of Trump’s targeting of diversity, equity and inclusion (DEI) programs. They attended a diversity training course that former Education Secretary Betsy DeVos encouraged during Trump’s first administration.

▪ The Hill: Experts worry the confusion stirred by a Trump administration funding freeze memo will not end quickly, harming public health services.

▪ The Hill: Republicans from disaster-prone areas back Trump’s push to overhaul FEMA.

▪ The Verge: The NTSB will only update the press about the plane crashes in Washington, DC and Philadelphia on X — not over email.

WHERE AND WHEN

It’s February! ❤️
The House will convene at noon Tuesday.
The Senate meets at 3 p.m.
The president will speak this morning with the leaders of Canada and Mexico.

ZOOM IN

DEMS, WHAT’S NEXT? Democratic strategists are fuming about their party leadership’s early response to Trump, saying the reaction is inconsistent and not aggressive enough. While Democrats have begun to punch back against the president’s executive orders and actions, strategists told The Hill’s Amie Parnes and Alexander Bolton it’s not nearly enough.

“Democratic leadership acts like it’s permanently 2006, a year when, yes, we took back the Senate, but also before the Republican Party found a cult leader and lost its collective minds,” said Democratic strategist Christy Setzer. “We don’t live in that world anymore. We have a lifelong con man and convicted felon in the Oval Office who tries every day to turn this country into a dictatorship; let’s start acting like it.”

The New York Times: “We have no coherent message”: More than 50 interviews with Democratic leaders revealed a party struggling to decide what it believes in, what issues to prioritize and how to confront an aggressive right-wing administration.

Leading the Democrats’ response to Trump is Minnesota state party Chair Ken Martin, who was elected on Saturday as the next leader of the Democratic National Committee (DNC). Martin will be at least one figure the party will be able to turn to as a unifier-in-chief and leader, as few Democrats have immediately emerged from November’s election to guide the party.

The Hill’s Caroline Vakil breaks down what to know about the next DNC chair.

▪ The Associated Press: Outgoing DNC Chair Jaime Harrison’s exit interview.

▪ ABC’s “This Week”: Rahm Emanuel, the former U.S. ambassador to Japan, former Chicago mayor and former White House chief of staff said that Democrats have to decide what hills they’re willing to fight on.

ELECTIONS: When Vivek Ramaswamy formally launches his expected bid to succeed Ohio Gov. Mike DeWine (R), the biotech entrepreneur and former presidential candidate, will be on track to be the favorite for the Buckeye State’s governor’s mansion, writes The Hill’s Julia Mueller. Some of Vice President Vance’s top political advisers joined on to steer Ramaswamy’s to-be-announced campaign.

“He’ll need to do the work to get around,” said one Republican strategist in the state. “But listen, if he gets the Trump-Vance endorsement, I think it’s very tough. I think it’s over.”

In Texas, Attorney General Ken Paxton (R) is weighing a primary challenge to Sen. John Cornyn (R) in what could be the next high-profile proxy battle between the two competing wings of the state’s GOP. If Paxton runs, the primary would likely be one of the most expensive in the country and be the toughest election in both men’s careers.

GOP tensions are also spilling out into the open in Florida. Gov. Ron DeSantis (R) is at odds with his own party in the Sunshine State, pointing to a new divisive era of GOP-led politics in a state that has trended red over the last few cycles, writes The Hill’s Julia Manchester. The rare intraparty fighting marks a new era for DeSantis as he seeks to curry favor with Trump on his top campaign issues in the state that has become the center of the GOP universe.

▪ The Hill: Michigan Sen. Gary Peters’s (D) unexpected decision to not seek another term in 2026 has scrambled what was already expected to be a closely fought race in a key battleground.

▪ The Hill: Former Rep. Mike Rogers (R-Mich.) said he’s considering another run for Senate in 2026 after Peters’s announcement.

▪ Axios: New Democratic Senatorial Campaign Committee Chair Sen. Kirsten Gillibrand (N.Y.) has been privately indicating she’s prepared to intervene in contested primaries.

ELSEWHERE

PANAMA CANAL: Secretary of State Marco Rubio told Panamanian President José Raúl Mulino during a meeting there Sunday that the Central American country must reduce alleged Chinese influence on the Panama Canal area or the Trump administration would take “measures necessary” to do so. Rubio, on his first foreign trip as America’s top diplomat, met with Mulino, who has resisted pressure from the Trump administration over Panama’s management of the waterway. Mulino told reporters his country won’t give up control of the canal, but stressed that the government is going to conduct an audit of Chinese operated ports on both sides of the canal.

Ahead of Rubio’s visit, Mulino stressed the Panama Canal is not up for discussion.

“It’s impossible,” Mulino said at a press conference in Panama City on Thursday. “I cannot negotiate, and much less open a process of negotiation, over the canal. That’s sealed. The canal belongs to Panama.”

The trip to Panama is part of a broader visit to Central America and the Caribbean as Rubio seeks to refocus U.S. diplomacy on the Western Hemisphere — in part to recruit help in stemming migration toward the southern border. Other countries on the itinerary: El Salvador, Guatemala, Costa Rica and Dominican Republic.

Politico: “There will be many casualties”: Panama girds for war as Rubio opens talks.

GAZA CEASEFIRE: Trump will welcome Israeli Prime Minister Benjamin Netanyahu to the White House this week, with tensions between the two leaders standing in stark contrast to the priority both countries place on the bilateral relationship.

Among the top issues for the visit are maintaining a fragile ceasefire and hostage release deal between Israel and Hamas in Gaza; taking steps toward brokering ties between Israel and Saudi Arabia; and confronting the threat from Iran.

The Hill’s Laura Kelly breaks down what to know ahead of the Tuesday meeting.

The Washington Post: Keith Siegel, a 65-year-old citizen of Israel and the United States, and two other male hostages were released Saturday as part of the first phase of the Gaza ceasefire deal.

Trump’s freeze on foreign aid has already had massive impacts on people around the globe. Patients and health care advocates said the abrupt decision to halt U.S. funding for a lifesaving HIV program in Africa led to widespread confusion and worry that the virus would spread further. The backtracking didn’t help. Meanwhile, the freeze has brought lifesaving work on climate adaptation and clean energy in dozens of countries to a “screeching halt.” In Syria, there are fears for the stability of camps imprisoning tens of thousands of Islamic State fighters, The New York Times reports.

The Washington Post: Development organizations that program and deliver billions of dollars in U.S. humanitarian aid warn they may have to shut down.

OPINION

■ The dumbest trade war fallout begins, by The Wall Street Journal editorial board.

■ Democrats have become the party of permissiveness. That’s ballot box poison, by Rahm Emanuel, guest essayist, The Washington Post.

THE CLOSER

And finally … 🎶 Music’s biggest stars, including Beyoncé, came to shine in Los Angeles Sunday to celebrate the 67th annual Grammy Awards. With “Cowboy Carter,” she took home three trophies, including “Album of the Year,” becoming the first Black woman to win the top prize in the 21st century after being nominated in the category four other times. She’s the most awarded and nominated artist in Grammys history.

During her acceptance speech, Beyoncé acknowledged and praised Los Angeles firefighters, some of whom announced the contenders and her win. She said she felt “very full and very honored.”

Kendrick Lamar won song and record of the year for his diss track “Not Like Us.” Sabrina Carpenter picked up two wins and Chappell Roan came out on top in arguably the most competitive best new artist race in recent years.

Here are the winners and losers from music’s biggest night.

Stay Engaged

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