This post is excerpted from Jeff Gitterman’s recent commentary. Read the full version.
As we head deeper into 2025, the Trump administration has begun executing on what it calls the “3-3- 3+” economic plan, a blend of fiscal, monetary and trade policies designed to fundamentally reshape America’s economic trajectory by 2028.
Proposed originally by Treasury Secretary Scott Bessent and later expanded by President Trump, this agenda centers on four primary objectives:
- reducing the federal budget deficit to 3% of GDP
- sustaining 3% annual GDP growth increasing domestic oil production by 3 million barrels per day
- reshoring critical manufacturing sectors
While these goals may sound technocratic or abstract, the strategies used to achieve them, including a sweeping tariff regime, aggressive debt refinancing, spending cuts and a push to revive U.S. industrial capacity are already reverberating across the markets, labor force and the world.
The return of tariffs — bigger than ever
Perhaps the most controversial component of the Trump plan is the reintroduction and expansion of tariffs. In his first term, Trump’s trade war peaked at around $100 billion in annual tariff revenue with a global average rate of 10%. This time around, the administration is aiming for average effective tariffs closer to 25%, which could bring in $500 billion to $700 billion annually.
But these gains come with significant trade-offs. Estimates suggest that tariffs could raise core inflation by 4% to 5% this year, shave 1.2 percentage points off GDP growth and increase the unemployment rate to 4.7%. These effects are already felt in the markets, where consumer confidence is waning, hiring plans are being paused and prediction markets are now placing U.S. recession odds at 52% for the year.
What makes the new tariff policy even more opaque is the method of calculation. Instead of relying on actual foreign tariff rates or World Trade Organization standards, the Trump administration appears to be basing tariffs on bilateral trade deficits.
For example, the European Union is facing what effectively amounts to a 39% tariff, derived from the size of the U.S. trade deficit with Europe — even though the EU’s average tariff on American goods is only about 5%.
Many economists argue this approach misrepresents the nature of trade imbalances. Much of the U.S. trade deficit with the EU isn’t the result of unfair barriers, but rather structural differences: the U.S. is primarily a services-driven economy that imports low-cost goods, while the EU is a more export-oriented manufacturing economy.
The baseline global tariff of 10% takes effect on April 5, with additional country-specific increases, targeting China, Germany, India and Mexico set to roll out just four days later.
BMW’s predicament: a case study in tariff shock
To see how this plays out in practice, consider the example of BMW’s 3 Series sedans. These vehicles are built in Mexico by a German automaker and imported into the U.S., previously subject to just a 2.5% duty. Under the new tariff regime, that rate jumps to 27.5%, a combination of the 10% global baseline and an additional 17.5% penalty on Mexico and Germany. For a $47,000 car, this adds nearly $13,000 in tariffs.
BMW, for now, has committed to eating the cost through May, but it estimates a $1 billion impact this year. The South Carolina plant that could have absorbed production is already at capacity, leaving the company to decide between price hikes, production shifts or reducing U.S. inventory. This example underscores the blunt force of these tariffs and how quickly abstract economic policy can hit real-world bottom lines.
What does this mean for markets?
In a market environment this volatile, offering short-term guidance feels futile, what’s written in ink today may be obsolete by tomorrow.
Policy headlines are whiplash-inducing, and the range of potential catalysts is dizzying: tariff retaliation announcements, Trump abruptly pivoting from pressure to negotiation, a surprise Fed rate cut, tax cut legislation stalling (or failing), a poor Treasury auction on April 10 (the largest of the year), disappointing earnings from Nvidia, or geopolitical shocks out of Ukraine or the Middle East. Any of these events could rewrite the market narrative overnight.
Still, we can try to frame the current landscape. What’s clear is that policy uncertainty is the dominant variable, and neither the so-called Trump Put nor the Fed Put appear likely to activate in the near term. Soft economic data is showing cracks, but hard data—especially jobs and consumer spending—remains resilient, which may provide a floor under the next leg lower in U.S. equities.
A possible turning point could come in the form of a headline-grabbing trade deal or framework, particularly with a G-7 country like the U.K. That would give investors a way to “look through” the tariffs aimed at the EU and Japan and refocus on growth potential.
What is the market consensus?
The market currently assumes that:
- A Trump Put exists somewhere between 5,000 and 5,300 on the S&P 500, implying that if stocks fall within that range, Trump will back off the tariffs or introduce market-friendly policies.
- The U.S. will outperform globally in nearly all scenarios, thanks in part to the recent reset in TMT (Tech, Media, Telecom) valuations.
- The Fed Put will be triggered no later than the June FOMC meeting, with the central bank stepping in to offset any excessive downside risk.
Do we agree with consensus? Not exactly. Here’s why:
- On the Trump Put: Trump believes he can remake the global trade and manufacturing order quickly—and he’s likely more tolerant of equity market pullbacks than the Street assumes. If a Trump Put exists, its strike price may be well below 5,000. The willingness to shock the system appears deliberate, with an eye toward pushing rates down to refinance federal debt without worsening the deficit.
- On the Fed Put: The Fed remains boxed in. With unemployment at 4.2% and inflation still elevated (CPI at 2.8%), it’s difficult to justify rate cuts. The Fed is unlikely to step in unless unemployment climbs closer to 5.0%, and even then, if inflation remains sticky, policy action will be constrained. If anything, the Fed Put may not activate until Q3 or beyond.
Until there is clear direction on trade, ideally in the form of a credible framework rather than shifting headlines the market will remain choppy and sentiment fragile. This is an environment defined not by fundamentals, but by policy roulette.
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