America's fraying relationship with longtime allies is driving global economic shifts that were unthinkable just months ago.

Why it matters: Policy changes in the U.S. are rippling beyond its borders.

• Some of the world's biggest economies are in the midst of their own policy regime changes — pledging investments and adjustments in response to President Trump that could outlast him.

In Europe, the catalyst is the Trump administration's threat to pull back U.S. protection of European Union borders, as well as looming tariffs that could crush the already-ailing economy.

The intrigue: Europe is racing to adjust with plans that will play out over decades — a type of response not seen in Trump 1.0.

• Trump took office just as European leaders acknowledged the need for changes to reinvigorate its stagnant economy.
• But it also might be a sign of leaders expecting that Trump-style policies might stick even after he leaves office.

What they're saying: "Whereas Trump's first four years the Europeans viewed him as an accident, I think they see now he's no accident," Gordon Sondland, the former U.S. ambassador to the EU under Trump, tells Axios.

What's new: Germany's likely next chancellor, Friedrich Merz, announced plans to loosen the so-called "debt brake" that capped the deficit at 0.35% of GDP. This would let the country borrow billions for defense and infrastructure spending.

• "In view of the threats to our freedom and peace on our continent, the rule for our defense now has to be 'whatever it takes,'" Merz said at a press conference this week.
• Merz invoked an economically significant phrase for Europe: In 2012, then-European Central Bank president Mario Draghi said he would do "whatever it takes" to save the euro amid a debt crisis.

For proof of the historic nature of Germany's shift, look to the response in the bond market: Yields on the 10-year bund jumped more than 30 basis points in a single day, raising the nation's cost of borrowing.

What to watch: The scale of investment could help transform Europe's largest economy at a perilous time. It has been contracting since 2023, and Trump's proposed tariffs — set to take effect next month — could wreak havoc on its manufacturing industry.

• "Europe is being rocked by giant Trump shocks that have generated an equally massive response," Evercore ISI's Krishna Guha wrote in a client note Wednesday.
• "These are weeks when decades happen," Guha adds.

President Trump paused 25% tariffs on Mexican and Canadian imports covered by a North American trade pact until April 2.

Why it matters: It's the latest abrupt pivot in the Trump administration's trade policy, which is rattling businesses and consumers.

• Trump signed executive actions that said goods covered by the United States-Mexico-Canada Agreement (USMCA) — the deal negotiated in his first term — would get a temporary reprieve from tariffs.
• Most energy imports are not covered by the pact. Those goods will still be subject to 10% tariffs that took effect earlier this week, as will goods that face tariffs related to anti-dumping investigations.

The big picture: In the last month, the White House announced tariffs on incoming goods from Mexico and Canada that were later paused, imposed again and now paused once more.

• White House officials emphasized to reporters that the tariffs were implemented to push Canada and Mexico to choke the flow of fentanyl across the borders.

What they're saying: Commerce secretary Howard Lutnick said in a statement that the administration would still impose across-the-board reciprocal tariffs on April 2, actions that could impact Canada and Mexico.

• "Hopefully Mexico and Canada will have done a good enough job on fentanyl that this part of the conversation will be off the table and we will move just to reciprocal tariff conversation," Lutnick said.

The intrigue: The amendment adjusting the tariff plan acknowledges the potential damage of those levies to the auto industry, which trades parts across North American borders.

• The auto industry was the first to get a reprieve, just one day after the tariffs took effect.
• White House officials said the sector-specific pause that kicked off the broader tariff halt was not a result of the negative reaction across the stock market.
• Rather officials said that the pause came after the Big 3 automakers — Ford, General Motors, and Stellantis — committed to moving supply chains to the U.S.

Between the lines: The stock market has bounced up and down in recent days in response to reports about tariffs — generally falling on news of tariffs being imposed and rising on any headline about a pullback.

• But that pattern broke Thursday. Stocks not only remained in the red, but fell further after Trump posted to Truth Social about a pause.
• The S&P 500 closed down 1.8%.

What to watch: There is growing evidence that tariff uncertainty might jolt the global economy. Consumers have ramped up inflation expectations in the wake of tariffs.

• "The fact that the stock market goes up or down a half percent on any given day is not the driving force of our outcomes," Lutnick said in a statement.

Editor's note: This story has been updated with closing stock market statistics.

Buy your local economist a drink: The economic backdrop is more chaotic and uncertain than it's been in years — a result of fast-moving and sometimes vague Trump policy.

Why it matters: There is a growing list of factors that could put downward pressure on the economy — tariffs, spending cuts, a looming government shutdown and more.

• America's economy has defied naysayers, but there is no guarantee that continues.
• Forecasters are writing GDP and inflation estimates in pencil, warning that their models can't possibly account for all the ways the jumble of policies could net out.

What they're saying: "It's really drinking from a fire hose at this point," Brian Gardner, chief Washington strategist at Stifel, tells Axios.

• "Trying to understand where things are going is unusually difficult, historically difficult," Gardner adds.

Where it stands: The Atlanta Fed's GDPNow model, a "nowcast" that uses released data to estimate GDP in real-time, suggests the economy is contracting sharply.

• That is almost certainly not the case, but it is a signal of the huge question marks about what's ahead for the economy.

The backdrop

Trump's epic trade war: The longer the North American and U.S.-China trade war lasts, the more damage it risks for the economy.

• Trump said automakers would get a month-long reprieve from Canada and Mexico tariffs. It was welcomed by the auto industry, though it injected more uncertainty about what happens after the delay.
• More tariffs are on the horizon in the weeks ahead, including a reciprocal plan on April 2 that Trump has called "the big one."

DOGE spending cuts: Tens of thousands of federal workers have been fired or taken a buyout, with more layoffs to come, though some efforts have been halted by federal judges.

• Government employees make up a small share of the overall workforce, but the effects of nixed contracts could ripple out to the private sector.

Shutdown threat: Congress has until March 14 to pass a bill to fund the government or risk a shutdown.

• Republicans want to pass a budget that chops spending to pave the way to enact Trump's fiscal agenda — a difficult task without cutbacks to politically sensitive (and expensive) entitlement programs.
• A prolonged shutdown would delay the data releases necessary to gauge any economic impact from the factors listed here.

Tax cuts: Some CEOs say the extension of Trump 1.0 tax cuts could offset potential economic weakness from the trade war.

• Concerns about blowing out the deficit might hamper that effort.
• The price tag is ballooning. In a congressional address, Trump called for no tax on tips, overtime or Social Security benefits. He pitched tax-deductible interest payments on loans for U.S.-made cars.

Immigration: The construction industry has warned about the potential double-whammy from deportations that could dent labor supply.

Two other factors to watch

Interest rates: The Fed has adopted a wait-and-see approach as inflation looks more sticky and White House policy remains in flux.

• Some economists warn that the trade war could keep inflation high and slow the economy, forcing the Fed to choose: elevated rates to control inflation, or lower rates to contain economic fallout.

AI adoption: In the background of all these factors is questions about how quickly companies are folding AI into their business models — and the ultimate impact on productivity and workforces.

• Companies are investing (or planning to invest) billions of dollars into data centers to power AI that, if fully materialized, might boost the economy.

The Trump administration is easing the newly imposed tariffs on North American allies, with an auto sector carve-out that exempts the industry from import taxes for one month.

Why it matters: It offers temporary relief to a business that heavily relies on free trade with Canada and Mexico.

• But the announcement is also the latest bump in the tariff rollercoaster ride that is hamstringing some business activity and stoking inflation fears.

What they're saying: "At the request of the companies associated with USMCA, the president is giving them an exemption for one month so they are not at an economic disadvantage," press secretary Karoline Leavitt said at a White House press briefing on Wednesday.

• Leavitt was referring to the United States Mexico Canada Agreement, the trade deal negotiated in Trump's first term. She said the requests came from top executives at Ford, Stellantis and General Motors.

Even with that exclusion, the 25% Canada and Mexico tariffs still cover a huge portion of other imports. The 20% tariff on Chinese imports remains unchanged.

• The uncertainty about Trump administration policy leaves some companies in a bind. Executives don't know whether or when imports taxes will be called off.

What to watch: Speaking to reporters, Leavitt doubled down on tariffs as central to Trump's economic policy, signaling that automakers should make long-term plans to adjust.

• "The reciprocal tariffs will go into effect on April 2, and he feels strongly about that no matter what — no exception, exemption," Leavitt said.
• Leavitt said the president told the automakers "to start investing, start moving — shift production here to the United States of America where they will pay no tariff."

Between the lines: The White House has tried to distinguish between the various sets of tariff proposals — and how a trade spat might be resolved.

• A White House official said the Canada, Mexico and China tariffs are about controlling the flow of fentanyl in the U.S., as opposed to the lumber tariff investigation that stems from national security concerns.

Yes, but: The temporary tariff relief comes even as Trump says he is dissatisfied with Canada and Mexico's actions on fentanyl.

• "I told him that many people have died from Fentanyl that came through the Borders of Canada and Mexico, and nothing has convinced me that it has stopped," Trump posted on Truth Social, describing a conversation with Canadian leader Justin Trudeau.
• "He said that it's gotten better, but I said, 'That's not good enough.'"

The intrigue: The volatility of Trump policy is on full display in the stock market, which has moved in lockstep with tariff news in recent days. Stocks turned positive after reports of the tariff reprieve.

• Shares in the three automakers rallied sharply.

The bottom line: As recent days make clear, it's not just the actual tariffs that pose a risk to the economy, but the uncertainty of their implementation.

• Commerce Secretary Howard Lutnick said the sectors spared from these tariffs might be roped into a broader tariff announcement in early April.

Editor's Note: This story has been updated with additional White House comments.

President Trump is making good on tariff threats that will raise the stakes of his trade war with China and potentially ignite another in North America.

Why it matters: It breaks a pattern of head fakes that Wall Street and businesses large and small had hoped would continue.

• Financial market jitters and bearish anecdotes from manufacturers were not enough to stave off the levies.
• Trump will plow ahead with 25% tariffs on Canada and Mexico and double the import tax on Chinese goods to 20%, with few hints of how long the measures will last.

The big picture: Escalating trade tensions have already been rattling the economy, even before the new tariffs took effect. Many businesses are in paralysis, waiting to make a move until White House trade policy becomes clear.

• One manufacturer told the Institute of Supply Management: "Customers are pausing on new orders as a result of uncertainty regarding tariffs. There is no clear direction from the administration on how they will be implemented, so it's harder to project how they will affect business."

The intrigue: A new report casts doubt on how much a tougher trade policy has actually choked off imports from China.

• There are upward of $100 billion worth of imports "missing" from U.S. data in 2024 — a trend that has worsened since the opening salvo of the trade war in 2018, according to calculations by the New York Fed.
• The report finds that "virtually all" of the missing imports can be attributed to China.
• If the nation is more reliant on Chinese imports than previously thought, the economic blowback from new tariffs might be worse.

What they're saying: "Simply stated, the U.S. is saying it buys from China a lot less than what China says it is selling," Hunter Clark, an economic policy adviser at the New York Fed, wrote in a new report.

• One clue: At least half stems from a surge of small-dollar purchases from China — including imports from popular Chinese e-commerce sites — that are not included in U.S. import data.
• These de minimis imports are not subject to tariffs and enter the U.S. "with light documentation," the report said, which contributes to the understated import data.
• About 67% of all the de minimis imports came from China between 2018 and 2021, according to estimates by Customs and Border Protection cited in the New York Fed report.

What to watch: An initial Trump order would have effectively scrapped the de minimis exemption. That has been paused indefinitely while the government develops a system to collect tariffs on these goods.

• If that exemption is nixed, the effects might be notable for consumers buying from shopping platforms like Shein or Temu.

The bottom line: Trump has implemented bigger China tariffs in recent weeks than in the entirety of his first stint in office.

• A flaw in trade measurement adds to the uncertainty of how big a shock might be ahead.

America is the world's biggest business, and its shareholders — U.S. taxpayers — should be panicked about the state of their investment, says star Wall Street analyst-turned investor Mary Meeker.

Why it matters: For the first time since 2011, Meeker examined the financials of the U.S. the way she would analyze those of a public company. "USA Inc," however, has more at stake than any single corporation: America's worsening fiscal position could limit its ability to respond to economic or geopolitical threats down the line.

What they're saying: "Beneath the surface, financial 'results' — treating the government as if it were a corporation — conceal a buildup in structural weakness that can jeopardize our country's standing in the world," Meeker, who made her name during the dotcom boom, writes in a new report first seen by Axios.

The intrigue: Meeker, founder of venture capital firm Bond, does not mention in her report DOGE, Elon Musk's attempt to wield his business acumen to cut spending by at least $1 trillion.

• But Meeker said that improving the government's "operating efficiency" would ease spending, as originally proposed in her 2011 report.

By the numbers: If the government (by any method) reverted to the slower headcount growth trend seen from 1988 to 2009, that would imply 840,000 fewer workers in the next five years, according to Meeker's updated analysis.

• That would save more than $1.3 trillion over the coming decade.
• "USA Inc. could also focus intensively on local private company outsourcing, where state and local governments are finding real productivity gains," Meeker says.

The report updates a list of suggestions that appear aligned with Musk's philosophy — including pushing agencies and lawmakers to justify the expenses in proposed fiscal budgets.

Flashback: Meeker believed a 450-slide document published in 2011 would be her "one and done" alert on America's fiscal state. Warnings in the 2010s about higher borrowing costs are now the nation's reality.

• "Even as USA Inc.'s debt was rising for decades, plunging interest rates were keeping the cost of supporting it relatively steady," Meeker writes.

Now interest payments are swallowing government revenue, with spending on Medicare, Medicaid and Social Security set to explode.

• Entitlements and net interest payments will absorb all of the government's revenue this fiscal year, according to Congressional Budget Office estimates cited by Meeker.
• "With our demographics and our debts, we're on a collision course with the future," Meeker writes. "If we don't act very soon, which generation will be left holding the bag?"

Yes, but: No business has the borrowing and taxation powers of the U.S. government. Its scope of responsibilities are unmatched by any single corporation.

• For decades, Wall Street has warned about an impending fiscal crisis that would restrain the government's ability to borrow.
• In 2011, Meeker said that net debt levels were approaching "warning levels," though no fiscal crisis has emerged — at least not yet.

The bottom line: The government fiscal situation has deteriorated since Meeker's warning 14 years ago.

• Meeker says the "tide may now be shifting," though the realities of cutting spending where it would be meaningful — entitlements — look as politically impossible as ever.

The Trump administration will investigate whether to slap tariffs on lumber imports on the grounds of national security, raising the risk of higher costs for the construction industry and homebuyers.

Why it matters: It is the latest economically critical input — including steel, aluminum and copper — to get swept up into President Trump's trade war in an effort to boost domestic industry.

• A senior White House official said it is not certain whether the Commerce Department, which will carry out the investigation under Section 232, will ultimately impose tariffs.
• The official told reporters that these tariffs would be additive to others threatened by Trump.
• For instance, the White House plans to impose across-the-board 25% tariffs on imports from Canada — the largest supplier of lumber to the U.S.

Threat level: The administration says the investigation would determine whether foreign governments were dumping cheap lumber onto U.S. shores.

• If tariffs move ahead, it could make it more expensive, for example, for California to rebuild after destruction from the Los Angeles wildfires.

Flashback: Soaring lumber prices were a poster child of the inflation shock. Shortages of the building material slowed construction and put upward pressure on home prices.

• In 2024, the Biden administration nearly doubled tariffs on imports of Canadian softwood lumber to 14.5%.

State of play: The homebuilding industry has previously warned that raising tariffs further would have a "harmful effect" on housing affordability — most recently earlier this year, before Trump postponed 25% tariffs on Canada and Mexico.

• "Tariffs on lumber and other building materials increase the cost of construction and discourage new development, and consumers end up paying for the tariffs in the form of higher home prices," the National Association of Homebuilders, a lobbying group, said in a statement in January.

The White House still plans to implement 25% tariffs on imports from Canada and Mexico next week, at least for now — despite comments from President Trump on Wednesday that raised hopes of another delay.

Why it matters: The Trump administration has announced a slew of tariffs that could take effect on their respective deadline, or ultimately be pushed off — a prime backdrop for confusion.

The intrigue: That confusion was on full display in the immediate whipsaw in financial markets.

• The prospect of another delay for the 25% tariffs outlined in a White House executive order earlier this month — which had already been paused for 30 days — sent the U.S. dollar sharply lower against the Canadian dollar and Mexican peso, before recovering.

Catch up quick: Trump told reporters on Wednesday that the 25% tariff on imports from North American allies would take effect on April 2.

• Commerce Secretary Howard Lutnick quickly added that the "big transaction" would be April 2, but the "fentanyl-related" tariffs would be re-evaluated at the end of the 30-day pause on March 4.

Context: April 2 is the deadline for reciprocal tariffs that Trump previously announced, a senior White House official clarified to Axios.

• That official added that the 25% tariffs specific to Canada and Mexico were still on pause until next week, as originally thought. The administration has not made a decision whether to extend that pause or not.
• Lutnick told reporters that the Canadian and Mexican officials had to "prove to the president" that they had made progress on tighter border controls.

What to watch: The Commerce Department was previously ordered to draw up plans to impose tariffs on nations that the administration decides has unfair trading practices, a report due on April 1.

• That would allow Trump to put any tariffs in place the following day. Canada and Mexico could get hit in this order, too.

That is separate from another order that raises tariffs on all steel and aluminum imports to 25%, set to take effect on March 12.

• Trump said Tuesday that the Commerce Department would investigate whether to slap tariffs on copper imports.
• Trump on Wednesday told reporters that the administration was also looking into tariffs on European imports, particularly autos — though it was unclear if that was a new announcement or would come with the pending Commerce study.
• He's also hinted at future tariffs on semiconductors, pharmaceuticals, cars and lumber, but without setting any dates.

The bottom line: So far the Trump administration has implemented, not just announced, tariffs of 10% on all imports from China.

• If the administration makes good on some or all of its other tariff threats, keeping up with Trump trade policy might get that much harder.

The Commerce Department will investigate whether to slap tariffs on imports of copper, the latest manufacturing component — on top of aluminum and steel — to be swept up in the Trump administration's trade crackdown.

Why it matters: The White House on Tuesday said the billions of dollars worth of annual copper imports threaten national security, given the metal's critical role in the buildout of military vehicles, aircraft and more.

What they're saying: "Tariffs can help build back our American copper industry, if necessary, and strengthen our national defense," Commerce Secretary Howard Lutnick said in a statement given to reporters.

• "American industries depend on copper and it should be made in America. No exemptions, no exceptions."

Yes, but: The U.S. exported more copper, in dollar terms, than it imported in 2024 — a sign that the Trump administration is not just targeting materials where there is a trade imbalance.

• Last year, the U.S. exported $11 billion worth of copper, while it imported about $9.5 billion worth of copper from foreign nations, according to Commerce Department data released earlier this month.

What to watch: Trump's order on Tuesday takes no definitive action. Instead it marks the beginning of a Section 232 investigation that may (or may not) end with a recommendation to put a certain tariff rate on copper imports.

• These investigations have historically dragged on for years, but White House senior trade advisor Peter Navarro told reporters this process will move faster.
• "You will see that our new Secretary of Commerce will move in what I like to call 'Trump time,'" Navarro said, though he offered no timeline for the investigation.

The bottom line: Copper is the latest on a growing list of potential tariff targets that may or may not ultimately face import taxes.

• The uncertainty around trade policy is weighing on sentiment. Surveys by the University of Michigan and the Conference Board show consumers are worried that tariffs will push up prices.

The new administration's policies appear to be weighing on purchasing plans, hiring intentions and hopes of lower inflation, according to recent survey data.

Why it matters: In the immediate aftermath of the election, markets rallied and businesses celebrated the dawn of a friendlier era for regulation. Now, tariff threats look to be putting a dent in the economic outlook of consumers and businesses.

• It's likely that signs would first appear in key surveys of businesses and shoppers — though it is still early and the pandemic recovery exposed the flaws of these measurements.

The big picture: Excitement about potential Trump-era deregulation and tax cuts drove consumer and executive sentiment higher right after the election. Now fears about trade war fallout might overshadow those business-friendly policies.

• The University of Michigan's measure of consumer sentiment fell about 10% this month relative to January, the second consecutive decline.
• Buying conditions for large-ticket items plunged almost 20% in February, a sign that consumers anticipate tariff-related price increases.
• Meanwhile, expectations for inflation in the year ahead surged a full point to 4.3%, above the range seen in pre-pandemic times.

What they're saying: "Consumers broadly anticipate that tariff hikes will lead to higher inflation, but policy uncertainty means that their views are subject to change," UMich's Joanne Hsu said in a statement, adding that 40% of consumers surveyed spontaneously mentioned "tariffs" — up from 27% last month.

They're not alone in their anxiety: Small businesses — the economy's biggest hiring machine — are marking down capital investment plans, according to an index from the National Federation of Independent Business, a lobbying group.

• Headline sentiment remains above the historical average, but a measure of uncertainty is the third-highest on records going back almost 40 years.

S&P Global's preliminary purchasing managers' indices suggested a sharp slowdown.

• An output index across goods and services fell 2.3 points in early February to the lowest in 17 months, signaling "a steep deceleration in the pace of economic growth over the past two months from a buoyant rate seen late last year," according to a statement.
• Companies said "tariffs were widely cited as a key cause of higher prices in the manufacturing sector."

Of note: "Despite fearmongering by Democrats and the media over President Trump's trade policies — that did not drum up inflation during his first term — the Trump administration remains committed to delivering economic relief for everyday Americans and restoring American Greatness," White House spokesperson Kush Desai tells Axios.

Surveys of businesses and consumers may have become less reliable as early indicators of how the economy will perform in this highly polarized age.

The intrigue: In the Biden era, there was a mismatch between tanking sentiment and strong economic activity — a factor that might have been influenced by politics. That phenomenon may extend into the Trump years.

• For instance, depressed sentiment and higher inflation expectations in February were concentrated among Democrats and independents, according to UMich.
• UMich's sentiment index dropped 14 points among Democrats and roughly half as much for independents.
• Among Republicans, sentiment held at the highest level since the 2020 election. Democrats' sentiment hasn't been this low since April 2020.
• "Consumers are feeling gloomier, but the post pandemic economy has taught us attitudes don't always drive spending decisions," Nationwide financial market economist Oren Klachkin wrote in a client note.

Between the lines: More and more surveys about economic conditions appear not to offer independent information about peoples' plans to spend money or buy a car, but rather whether they do or do not like the person in the White House.

The bottom line: Survey-based data offer early warning signs of trouble, but it's what people do, not what they say, that will determine how the Trump economy turns out.

The Elon Musk-led DOGE's latest update on an accounting of its cost-cutting measures to date raises more questions than answers: It didn't take long before at least one major error was identified in its receipts.

Why it matters: There is uncertainty about the accuracy of the self-reported audit that could, in theory, make DOGE's moves across the federal government more transparent.

• There are already concerns about the agency's access to databases and private data typically reserved for career staffers.

The big picture: The DOGE website said it canceled a contract for the U.S. Immigration and Customs Enforcement agency — for "program and technical support for the office of diversity and civil rights" — that was purportedly worth $8 billion.

• That is a big contract that alone would all but use up ICE's $9 billion budget.
• The contract was actually worth $8 million, as the New York Times and other publications have pointed out.

The intrigue: DOGE claims that its "total estimated savings" to date are roughly $55 billion. But there are questions about whether that sum is inflated. Bloomberg says the website lists $16.6 billion in savings.

Between the lines: The website accounts for the face value of a contract but does not seem to account for funds that are spread across several years. If some of the money has already been spent, that is money that is not technically "saved."

It is also unclear how cuts in one area might affect government revenue in another.

• Take layoffs at the Internal Revenue Service — rumored to begin as soon as today — that could result in fewer tax collections.
• The Biden administration made the opposite bet: bulking up IRS staff would result in higher collections.

💭 Our thought bubble, from Axios' longtime Musk-watcher Joann Muller: Musk's accounting of the litany of accomplishments at DOGE shares a similar lack of specificity with Tesla investor calls.

• He boasts about sales volumes going up or costs going down, for example, but provides very few numbers. Musk makes confident predictions about "orders of magnitude" growth rates that are "insane," with very little to support those claims.
• It's up to investors to dig into Tesla's SEC filings — or, in this case, whatever data DOGE makes public — to get the details.

Federal Reserve officials said shifts in trade and immigration policy are among the factors that could derail inflation progress, according to minutes from the central bank's latest policy meeting released on Wednesday.

Why it matters: After two years fighting inflation, progress on cooling prices has stalled. The policies at the heart of President Trump's economic agenda — high tariffs and a crackdown on undocumented immigration — could risk a more bleak inflation outlook.

What they're saying: At the Fed's policy meeting, held Jan. 28-29, some officials called out factors that have "the potential to hinder the disinflation process, including the effects of potential changes in trade and immigration policy, as well as strong consumer demand," the minutes show.

• The minutes acknowledge that a number of businesses had indicated to some Fed officials that they "would attempt to pass on to consumers higher input costs arising from potential tariffs."

The big picture: President Trump has threatened (and in the case of China, put into place) across-the-board tariffs on imports from countries the administration determines has unfair trade practices.

• Trump has also issued a slew of executive orders since taking office aimed at cracking down on immigration.

Flashback: Fed chair Jerome Powell has said that higher immigration rates in recent years had helped close the gap between the high demand for workers and the supply of people available to fill them.

• The Fed no longer sees the labor market as a source of inflation, as the minutes showed.

Catch up quick: The Fed kept interest rates on hold at the conclusion of its meeting last month, buying more time to assess how inflation evolves in the months ahead.

• Data since that meeting showed 2025 kicked off with hotter-than-expected price pressures.
• Market-based odds published by the CME show overwhelming bets that the Fed keeps rates steady through June.

What to watch: Fed officials have cited heightened uncertainty around the economy, which has so far stayed healthy.

• But gaming out the impact of Trump's policies — trade, immigration, taxes and more — and how the mix of them nets out for inflation and growth is difficult.
• For instance, Fed officials also cited some upside risks to the economic policy, including a "potentially more favorable regulatory environment for businesses," the minutes show.

Europe faces two great crises — in the economic and security spheres — that are, ultimately, two sides of the same coin.

Why it matters: Europe has experienced subpar economic growth for a generation, and has underinvested in its own defense. Both problems are coming to a head, with the Trump administration's hostility as the catalyst.

• After decades of underinvestment and sluggish productivity, Europe faces receding U.S. security commitments, new tariffs on its exports, and a regulatory environment that puts domestic companies in a regulatory straightjacket.
• European elites are increasingly acknowledging that a lack of competitive fire, in both the economic and national security arenas, has resulted in overdependence both on U.S. companies to drive innovation and the U.S. government to defend Europe from Russia.

The intrigue: In a high-profile speech in Munich, European Commission president Ursula von der Leyen described a new world — one in which there is a heightened focus on geopolitical conflict and economic security.

• Von der Leyen proposed loosening the continent's fiscal rules to boost defense spending and protect member countries from possible threats from Russia — a rare move, last exercised at the COVID-19 pandemic's onset.
• "I believe we are now in another period of crisis which warrants a similar approach," Von der Leyen said.

Mario Draghi, the former European Central Bank president and Italian prime minister, said EU policies have strangled the economy more than the U.S. tariffs could.

• In an op-ed in the Financial Times on Friday, Draghi wrote that the EU has failed to address supply and demand issues caused by tough regulatory policy and depressed government investment. "Both these shortcomings — supply and demand — are largely of Europe's own making. They are therefore within its power to change."
• "Up to now, Europe has focused on either single or national goals without counting their collective cost," Draghi wrote.
• "But it is now clear that acting in this way has delivered neither welfare for Europeans, nor healthy public finances, nor even national autonomy, which is threatened by pressure from abroad," he continued. "That is why radical change is needed."

What to watch: In an extensive report on the EU's troubles, Draghi backed the idea of the continent borrowing as a whole for economic investment.

• "There are two very large systemic challenges coming down the pike," Heidi Crebo-Rediker, a senior fellow at the Council on Foreign Relations and former State Department chief economist, tells Axios.
• "It might be easier for Europe to negotiate on tariffs than to agree on a collective borrowing mechanism for the sheer amount of spending they need for their national security in as short an amount of time as possible," she adds.

A breakdown in the relationship between Europe and the United States, which has moved with breathtaking speed, is accelerating the recognition of long-developing economic problems.

Catch up quick: U.S. officials — including Secretary of State Marco Rubio — are in Riyadh, Saudi Arabia, to meet with Russian officials about the future of Ukraine. These are the first such talks since Russia's 2022 invasion.

• Absent from the talks over the continent's future are Ukrainian and European leaders, the latest blow in a recent series of events that dented U.S.-EU relations.
• President Trump has long claimed that the U.S. carried too much of the NATO burden in relation to EU countries. Last week, the administration all but said EU countries should not count on America for security.

Between the lines: In recent months, Europe's economic powerhouses have been in the midst of political chaos over budget disputes that, at least in one case, spooked the bond market.

• Germany, its largest economy, will hold an election in the coming days after different visions of how to ignite growth led to a government collapse.
• It is symbolic of Europe's already dismal economic reality — aging populations that will lead to a shortfall of workers, for instance — that now needs to adjust to higher defense spending demands.

The bottom line: "You're looking at a world where there is more uncertainty and the distance between peace and war is shorter," Claus Vistesen, chief eurozone economist at Pantheon Macroeconomics, tells Axios.

• "Europe needs a completely different industrial model but that takes time," Vistesen adds.

The Trump trade war has blown past the realm of tariffs. The White House plans to hit back at any measure undertaken by trading partners that it believes disadvantages U.S. exporters.

Why it matters: The Trump administration is ushering in a new era in which trade policy is managed country by country, using sweeping tariffs as the tool to address what officials call unfair trade dynamics.

• It will factor in trading partners' behavior that is outside the traditional confines of trade policy, including whether they fund their government with a value-added tax and how they manage their currency.
• It risks blowback on the U.S. if the nation is seen around the world as meddling in other countries' domestic policies.
• With such widespread tariffs, higher U.S. inflation is a risk.

What they're saying: "This really was an expansion of what has been seen as an unfair trade barrier, particularly related to taxes," Everett Eissenstat, a former official in the U.S. Trade Representative Office during Trump's first term, tells Axios.

• "You have tariffs being used to offset discriminatory tax policy — that's a pretty big shift," Eissenstat adds.

Yes, but: It comes with economic and strategic risks.

• "Take a country like India, where they have very high tariffs and we have very low tariffs: Are we going to raise all of our tariffs for India to those levels, even if that means we're going to be paying higher prices?" Wendy Cutler, a vice president at the Asia Society Policy Institute, tells Axios.
• "I don't think that's good policy," she says.

How it works: The tariffs won't take effect until early April, assuming they move forward at all.

• Over the next 100 days, the Commerce Department and the U.S. Trade Representative Office will calculate custom tariff plans for all trading partners with "non-reciprocal trade relationships," according to a memo President Trump signed Thursday.

Between the lines: There is a wide scope for how the White House defines such a relationship, which includes all tariff and non-tariff measures.

• The White House calls out nations with higher tariffs on U.S. products. It includes any nations that have devalued their currency or subsidized goods and any other practice that officials say "imposes any unfair limitation on market access," the memo says.

The intrigue: Speaking in the Oval Office, Trump called out the value-added tax (VAT) as "more punitive" than tariffs — opening the possibility for a trade war with Europe, where such taxes are common.

• The VAT applies to all goods (domestic or imported) across the trade bloc — a tax many economists don't assess as being particularly harmful to U.S. exporters.

The big picture: No country — ally or adversary — is immune.

• A White House fact sheet calls out motorcycles: India has a 100% tariff on U.S. motorcycles, while there is a 2.4% tariff on Indian-made motorcycles.
• The fact sheet mentions a "digital service tax" imposed by Canada and France, plus higher tariffs on cars imported from Europe.

What to watch: The planned tariffs might spur a series of bilateral talks that pull back the tariff threats — an outcome Trump suggested while he met with Indian Prime Minister Narendra Modi on Thursday.

• But there is a possibility the tariffs could linger — a risk for the economy with inflation that looks harder to beat.
• "The challenge is that this stuff is inflationary and it is disruptive. I think this economy is more jittery than the one we had in 2017," says Evercore's Sarah Bianchi, a former trade official under President Biden.

President Trump directed top trade officials to study retaliatory tariffs on global trading partners that have steep import duties on U.S. goods, a process that could take several weeks to complete.

Why it matters: It threatens a historic attack on global trade norms to address what Trump has deemed unfair imbalances, but also leaves room for the White House to strike deals that might ultimately avert tariffs.

• It reignites "will he, won't he" trade uncertainty, leaving companies guessing.

The intrigue: What looks like an opening salvo might be an effort to extract what the White House considers more favorable trade conditions, though Trump said on Thursday that the tariffs would help raise government revenues.

• Early calculations by one Wall Street analyst show the reciprocal tariffs would raise "minimal" revenue for the U.S.
• Commerce Secretary nominee Howard Lutnick said the study might be ready by April 1, and Trump could move to impose tariffs thereafter. Lutnick added countries might also lower their tariffs, which would cut costs for consumers.

The details: Trump's reciprocal tariffs would apply to foreign nations that charge higher tariffs on U.S. goods than the U.S. charges on the foreign nation's goods.

• There was no detail on which countries will be subject to the tariffs or if they will be limited to specific products. There was also no word on when the tariffs will definitively take effect.
• A factsheet released by the White House calls out a few examples, including India's tariffs on U.S. motorcycles and Brazil's tariff on ethanol.
• Targeting those countries' exports to the U.S. could affect the prices of a wide variety of goods, from paper and coffee to diamonds and cars.
• "Prices could go up somewhat short term, but prices will also go down," Trump said during a press conference in the Oval Office.

What to watch: Trump said the administration would consider Europe's value-added tax "to be the same as a tariff," raising the prospect of a trade battle with the continent.

• He also said he expects tariffs to raise a "staggering amount" of revenue.

Inflation surged ahead to start 2025, crimping Americans' buying power and serving as a warning to policymakers — whether those contemplating new tariffs or further interest rate cuts — that price pressures are not yet vanquished.

Why it matters: Economic policymakers have described the disinflation process as a bumpy road. The past six months instead look like an uphill path.

• Prices flatlined last summer but have risen at a 4.5% annual rate over the last three months, far above the Fed's goals and the highest since fall 2022.

What they're saying: "There's a déjà vu element here — 2024 also started with a few hot inflation prints that forced a big reassessment of rate-cutting expectations," JPMorgan Wealth Management's Elyse Ausenbaugh wrote in a note.

• "No matter how you slice the data, the January [Consumer Price Index] print marks an unwelcome re-acceleration in prices to start off 2025," Jason Pride, chief of investment strategy and research at Glenmede, wrote Wednesday morning.

By the numbers: For consumers, the report might just quantify what they have experienced in grocery stores — especially in the egg aisle, where prices rose 15% in January, with a 53% price gain over the past year.

• The CPI's overall monthly gain was the largest since the summer of 2023, pushed up in part by the biggest rise in grocery prices in almost three years.
• There were also outsized price increases in January for used vehicles (up 2.2%), prescription drugs (2.5%), hotels (1.7%) and auto insurance (2%).

Between the lines: Core CPI, excluding volatile food and energy, also moved in the wrong direction, ticking up 0.4% in January.

• On a three-month annualized basis, core CPI rose 3.8%, the highest since last April.

The report has at least one silver lining: Shelter inflation is much less alarming, with the overall index up 4.4% over the last year. That's the smallest 12-month gain in three years.

• Rents rose 0.3% for the second straight month, while owners' equivalent rent — how much it would cost homeowners to rent their own homes — rose by a similar amount.

Yes, but: Inflation data can be volatile in January, when companies tend to implement price increases.

• Even so, further progress on inflation has been stalling for months.
• The seasonal adjustment process may be exaggerating January inflation, due to the lingering effects of earlier inflation surges on the adjustment process.
• The economic backdrop, however, remains favorable: The labor market is strong with steadily rising pay — an outcome that has kept consumer spending strong.

Inflation moved higher in January: The Consumer Price Index rose 0.5%, while a measure that strips out energy and food rose 0.4%, the Labor Department said on Wednesday.

Why it matters: It's a warning to the White House and the Fed about inflation's potential staying power across the economy.

• CPI rose 3% in the year through January, compared to the 2.9% increase in December.
• Core CPI, which excludes food and energy, rose 3.3% over the last 12 months, up from 3.2% the prior month.

The big picture: Inflation progress has been bumpy in recent months, with much uncertainty about how White House policy — including tariffs — might weigh on prices.

• Any tariff effects would not be evident in this report; the 10% tariff on China went into effect in February, as did retaliatory measures.
• The CPI report is compiled throughout the month. The January report covers the final weeks of President Biden's time in office and the early days of the Trump administration.

What to watch: Federal Reserve chair Jerome Powell, who will appear before Congress again on Wednesday, has said the central bank is in no rush to lower interest rates further, as such uncertainties become more clear.

• "Inflation has moved much closer to our 2 percent longer-run goal, though it remains somewhat elevated," Powell told lawmakers Tuesday.

Editor's note: This story has been updated with details on when the CPI data was collected.

The North American trade drama is unfolding against a backdrop of diverging economic performance that gives President Trump leverage in the trade war.

Why it matters: The two nations are tightly linked by the trade patterns that the White House threatens to blow up.

• Canada is already on weak footing. Heightened conflict that would disentangle its economy from the U.S. would be a crushing blow.

What they're saying: "It's odd to have such a large difference in the two economies as we've seen in the last two years," Doug Porter, chief economist at BMO, tells Axios.

• The U.S. economy has grown at an annual rate of 2.8% over the last couple of years, versus 1.2% for Canada's economy.
• The unemployment rate in the U.S. is a low 4%; in Canada, it is 6.6%.

Between the lines: It looks like the U.S. economy nailed a soft landing after the inflation shock, but Canada's landing was bumpier.

• Like much of the rest of the world, Canada's central bank aggressively raised interest rates to squeeze out inflation. But Canadians felt the squeeze, and many homeowner mortgages reset in as little as three years.
• Other factors are at play: There was no productivity surge in Canada, business investment is stagnant, and the country is not benefiting from the animal spirits behind the AI boom.

The intrigue: Canadian monetary policy typically moves in lockstep with that of the U.S. But this time, it cut interest rates sooner, and at a much quicker pace relative to the U.S., to protect its economy.

• Since June, the Bank of Canada has cut rates by 2 percentage points — a full point above the Fed's cumulative cuts that are now on hold.
• "Throughout most of the past 20 years, Canada-U.S. interest rates have been fairly similar," Porter says. "It's really unusual to have such a large gap in rates, but these are unusual times."

What we're watching: Trump said he would put 25% tariffs on steel and aluminum imports, an announcement that could come as soon as Monday.

• It's unclear whether Canada — the overwhelming source of U.S. steel imports — will be subject to these tariffs, even as others remain on hold.
• If the tariffs go ahead, few nations will be impacted like Canada, which risks losing its biggest buyer if the U.S. ramps up domestic production.
• That is, at least, what the stock market is betting: Shares of steel producers are soaring.

Flashback: The tariffs have shades of 2018, when Trump imposed similar levies on steel and aluminum.

• Like the U.S., Canada was in the midst of a lengthy economic expansion. Exports of its aluminum fell almost 20% and steel exports dropped by 40%, according to a TD Bank report released this month. Canada's economy continued to grow, though at a slower rate, and unemployment and inflation stayed low.

The job market kicked off 2025 with solid hiring: The economy added 143,000 jobs in January, while the unemployment rate dropped to 4%, the Labor Department said on Friday.

Why it matters: The pace of hiring cooled from the final months of 2024, but the labor market continues to be on solid footing, which has helped the economy defy slowdown fears.

By the numbers: Friday's report also includes annual revisions of previous years' data, which showed roughly 590,000 fewer jobs added than initially estimated in 2024.

• That revision was as expected.

The big picture: The Federal Reserve kept interest rates on hold last month after successive rate cuts, citing a healthy economy and labor market that left ample time to consider what the central bank should do next.

What to watch: The pause also allows officials to monitor the economic impacts of Trump policy — including possible trade wars that could increase inflation, which would weigh on hiring and the broader economy.

• The possibility of a North American trade war looks more distant — at least for now. But China is set to retaliate with 15% tariffs on select U.S. goods starting next week, raising the stakes.

The bottom line: The labor market entered 2025 on a solid note.

• So far the economy's strength has surprised forecasters anticipating a slowdown. There are huge uncertainties about whether that dynamic will continue.

President Trump campaigned on using tariffs to revive domestic industry and fill America's coffers, but the tariff strategy now looks more muddled than ever.

Why it matters: Trump has sent mixed signals about why his administration is slapping tariffs on billions of dollars' worth of imports, sparking confusion about whether the measures are temporary threats or the new economic normal.

• A trade war is underway with China, though every instance of tariff threats before that — Colombia, Canada and Mexico — has ended with Trump backing off, following concessions on areas of policy unrelated to trade.
• The economic impact of tariffs might prove minor if they are merely a negotiating tactic to extract non-trade-related concessions. But if they become a permanent feature of U.S. policy, they'll have a more lasting impact on the economy, markets, and business decision-making.

What they're saying: "If you move the tax base onto imports, then you now need imports to generate revenue," Jason Thomas, head of global research and investment strategy at Carlyle, tells Axios.

• "But if you have tariff rates that are so high that it leads to more domestic production, well, now you can't generate revenue. These two things are not mutually consistent with one another," Thomas adds.

Catch up quick: Tariffs on most North American imports are temporarily on ice after Canada and Mexico notched a deal with Trump.

• But the 10% tariff on all imports from China took effect Tuesday morning. No product is exempted from the import tax, unlike in Trump's first term.
• Overnight, China hit back, threatening retaliatory 15% tariffs on a slew of U.S. imports, including farm machinery, coal and natural gas. It will also restrict exports of crucial minerals.
• Then there was a non-trade-related measure: Regulators in China opened an antitrust investigation into Google.

The intrigue: The White House warned that retaliation would result in stiffer tariffs.

• But China's retaliatory measures won't go into effect until next Monday. In theory, that offers a window for Trump and Chinese leader Xi Jinping to land a deal that could stave off the trade war — much like Canada and Mexico. (They are due to speak Tuesday.)

That appears to be the ideal outcome. Speaking in the Oval Office on Monday, Trump suggested the tariffs were a negotiating tactic.

• "China hopefully is going to stop sending us fentanyl, and if they're not, the tariffs are going to go substantially higher," Trump told reporters.

Yes, but: Trump also returned to a regular frustration about trade deficits when defending tariffs.

• "The USA has major deficits with Canada, Mexico, and China (and almost all countries!), owes 36 Trillion Dollars, and we're not going to be the "Stupid Country" any longer," Trump wrote, in part, on his social media site Truth Social.
• Trump has also said tariffs would be a source of government revenue that could help pay for his tax legislation.
• "I think that there is this presumption that revenue associated with tariffs will offset some portion of those tax cuts," Carlyle's Thomas says. "As we get closer to that, we'll have to see more evidence of what really intends to be permanent, as opposed to which tariffs are more trying to shape the behavior of foreign governments."

The other side: Conservative economist Oren Cass, who has supported Trump's tariff plans, said it was clear that these were negotiating tariffs — rather than a tariff that seeks to raise revenue, decouple economies or rebalance trade deficits.

• "Think of a negotiating tariff like an embargo or a loan—an economic tool of statecraft used to advance foreign policy aims," Cass wrote in a post Monday.
• Cass, however, admitted the Trump administration's negotiation-type tariffs are unclear: "[T]he actual demands remain unclear at best," he wrote.