ARI SHAPIRO, HOST:
Stocks fell sharply this morning after President Trump issued two new tariff threats. Some of those losses were later reversed, but markets are still ending the week on a down note. It's a reminder for investors that the president's trade war is not over, and there are new concerns about the rising federal debt. NPR's Scott Horsley is here to explain. Hey, Scott.
SCOTT HORSLEY, BYLINE: Hi, Ari.
SHAPIRO: Let's start with the president's latest trade tirades. Who's he targeting this time?
HORSLEY: The European Union and Apple. It's become kind of a familiar pattern now. The president took to social media this morning to rattle his tariff saber. He complained that trade talks with the EU have been, quote, "going nowhere," and he threatened to impose a 50% tax on all imports from the European Union unless that changes by June 1. By the way, 50% would be five times the import tax that Americans are paying on European goods right now. Trump told reporters this afternoon he's playing hardball.
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PRESIDENT DONALD TRUMP: I just said it's time that we play the game the way I know how to play the game.
HORSLEY: Now, history suggests the way Trump plays this game is often to threaten big tariffs and then backtrack after a market sell-off. Trump is also threatening to impose a 25% tax on iPhones unless Apple starts building those phones here in the United States.
SHAPIRO: Is that likely to work?
HORSLEY: Doubtful. Up until now, smartphones have been largely spared from the President's trade war, so a 25% tax would be a big escalation if it actually happened, but probably not big enough to actually move iPhone manufacturing into the U.S. One analyst estimated that if Apple even tried to build iPhones here in this country, they would cost around $3,500, which is a lot more than the imported version, even with a 25% tariff. That analyst, Dan Ives of Wedbush Securities, described the concept of Apple making iPhones here as, quote, "a fairy tale."
SHAPIRO: This is a big change from a week ago, when we got good news on tariffs and the stock market soared. Why the turnaround?
HORSLEY: Yeah. Last week, we saw huge gains in the market after the U.S. and China agreed to temporarily suspend their most punishing tariffs, and investors may have concluded, perhaps prematurely, that the trade war was over, even though a lot of importers are very much aware that it's only a temporary truce. Even with that partial rollback, Americans are still paying the highest import taxes since the Great Depression, almost a century ago. Now, the president has been pressuring retailers to eat those tariffs and not pass them on to consumers. But that's probably not realistic given how high these import taxes are. And as we've seen again today, the president may not be done issuing tariffs.
You know, we're operating in a world where on any given morning, Donald Trump can wake up and call for double-digit taxes on goods from any country or any company. And, of course, that's only part of what's rattling the stock market this week. The other fear factor is the turmoil in the bond market, which is tied to rising government debt.
SHAPIRO: Tell us more about that. How's the bond market looking as we head into the long weekend?
HORSLEY: Yeah. Bond yields are still elevated, which is another reason that all the major stock indexes are down about 2.5% for the week. It was just a week ago that Moody's stripped the federal government of its AAA bond rating, suggesting that the U.S. government is not quite as good a credit risk as had long been assumed. Now, this week, the House added to that concern by passing that big tax cut and spending bill, which would add trillions of dollars in additional red ink over the next decade. So bondholders are demanding higher interest rates to hold on to U.S. government debt. That means the government has to pay more to borrow money, and so does everyone else. You know, mortgage rates, for example, were already high, which is why there's been a slump in the housing market this year, and now they're climbing higher. Freddie Mac says the average rate on a 30-year home loan is now 6.86%.
SHAPIRO: NPR's Scott Horsley, thank you.
HORSLEY: You're welcome. Transcript provided by NPR, Copyright NPR.
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