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One day more than 30 years ago, during the administration of President George H.W. Bush, the secretary of state, James Baker, flung a newspaper article at an aide, Daniel Kurtzer, and declared he was going to eject the Israeli ambassador. He was furious about a quotation he had just read from the deputy foreign minister of Israel, Binyamin Netanyahu.
Mr Kurtzer pleaded for 24 hours to check that the quotation was accurate. He learned that Mr Netanyahu’s wording was slightly different from what had been reported, but still shocking: America, Mr Netanyahu had said, “is building its policy on a foundation of distortions and lies”. The ambassador got a reprieve, but Mr Baker declared Mr Netanyahu persona non grata and banned him from the State Department.
A few years later, in 1996, Mr Netanyahu became prime minister, and it was President Bill Clinton’s turn to be insulted. “Who the fuck does he think he is?” Mr Clinton vented to aides, after receiving a lecture on how to deal with Arabs during his first meeting with Mr Netanyahu. “Who’s the fucking superpower here?”
Even Donald Trump, who as president delivered item after item on Mr Netanyahu’s wish-list, found himself blindsided by a classic Netanyahu manoeuvre to box America in. When the two men appeared in the East Room of the White House to announce a peace plan they had arrived at without Palestinian participation—the plan went nowhere—Mr Netanyahu declared it meant Israel could now annex parts of the occupied West Bank. “This was not what we had negotiated,” a flabbergasted Jared Kushner, Mr Trump’s son-in-law and lead negotiator, would later write in his memoir, “Breaking History”. “I grabbed my chair so intensely that my knuckles turned white, as if my grip could make Bibi stop.”
Far more than the unpractised Mr Kushner, President Joe Biden had reason to hope that his grip would be enough to restrain the prime minister, whom he had alternately jousted and joked with for decades, since back before Mr Baker imposed his ban. But since Hamas’s rampage into Israel on October 7th, Mr Netanyahu has repeatedly rejected Mr Biden’s counsel about the war and scorned his vision for its aftermath. That is what provoked Chuck Schumer, the Senate majority leader, to give an extraordinary, anguished speech on March 14th naming Mr Netanyahu along with Hamas as an obstacle to peace and calling for an Israeli election to oust him. Mr Netanyahu, he said, “has lost his way”.
Mr Netanyahu and other Israelis would be making a mistake to interpret the speech as just another bump in the often rocky road the allies have travelled since the founding of Israel. “This is very different,” says Mr Kurtzer, who went on to serve as the American ambassador in Cairo and then Tel Aviv. “The Israelis will need to understand that this is a wake-up call, if nothing else has persuaded them that they’re running into a problem with us.”
Mr Schumer, the highest-ranking elected Jewish official in American history, is no fair-weather friend of Israel. Back when Mr Netanyahu outraged Barack Obama’s White House by attacking Mr Obama’s proposed nuclear deal with Iran in a speech to a joint session of Congress, Mr Schumer was one of only four Senate Democrats to vote against the deal. Mr Schumer is also no progressive. Now aged 73, he was at pains in his speech to point out that “unlike some younger Americans” he was of a generation “within living memory of the Holocaust”. He described pressing a transistor radio to his ear at high school as he fearfully tracked news of the Six Day War.
Mr Schumer is a political animal, as alert to danger in his surroundings as they come, but it is doubtful that he was worrying about Mr Biden’s chances of winning Michigan. Mr Netanyahu should worry instead that, given Mr Schumer’s political sophistication, he was correct in saying he spoke for “a silent majority” of Jewish Americans, people, he said, “who love Israel to our bones” yet take a nuanced view of the war in Gaza. Mr Schumer repeatedly condemned Hamas and a double standard in the news media that put all the blame for Palestinian suffering on Israel. But, he said, both Israel and the United States had a “moral obligation” to do more to protect Palestinian civilians: “We must be better than our enemies, lest we become them.”
Mr Netanyahu responded on March 17th by saying that calling for elections in Israel now would be like having called for elections in America in the wake of the attacks of September 11th 2001. “You don’t do that to a sister democracy, to an ally,” he told cNN. But Mr Biden has made clear that he approved of Mr Schumer’s message. “He made a good speech,” he told reporters.
Moving America
Mr Netanyahu was partly brought up and educated in America, and he prides himself on understanding how to manage its politics. “I know what America is,” he remarked once, apparently unaware he was being recorded. “America is a thing you can move very easily.” Maybe not this time. Given the polarisation of foreign policy, he can count on Republican backing, but bipartisan support of Israel has always been a bulwark of its security and, having lost Mr Schumer, Mr Netanyahu has all but lost the Democrats.
Even before Mr Schumer spoke, Mr Biden had boxed himself in, saying if Israeli forces conducted a major operation in Rafah in the southern Gaza Strip they would be crossing “a red line”. He has required “credible and reliable” assurances from Israel that it is using military aid in compliance with international humanitarian law. The Americans will soon decide whether they are satisfied with those assurances. Mr Schumer has dramatically strengthened Mr Biden’s hand, should he choose to find Israel is misusing American weapons. The anger of America’s leaders is directed at Mr Netanyahu, but Israel may wind up paying the price. ■
The U.S. government is set to increase tariff rates on several categories of imported products. Some economists tracking these trade proposals say the higher tariff rates could lead to higher consumer prices.
One model constructed by the Federal Reserve Bank of Boston suggests that in an “extreme” scenario, heightened taxes on U.S. imports could result in a 1.4 percentage point to 2.2 percentage point increase to core inflation. This scenario assumes 60% tariff rates on Chinese imports and 10% tariff rates on imports from all other countries.
Price increases could come across many categories, including new housing and automobiles, alongside consumer services such as nursing, public transportation and finance.
“People might think, ‘Oh, tariffs can only affect the goods that I buy. It can’t affect the services,'” said Hillary Stein, an economist at the Boston Fed. “Those hospitals are buying inputs that might be, for example, … medical equipment that comes from abroad.”
White House economists say tariffs will not meaningfully contribute to inflation. In a statement to CNBC, Stephen Miran, chair of the Council of Economic Advisers, said that “as the world’s largest source of consumer demand, the U.S. holds all the leverage, which means foreign suppliers will have to eat the economic burden or ‘incidence’ of the tariffs.”
Assessing the impact of the administration’s full economic agenda has been a challenge for central bank leaders. The Federal Open Market Committee decided to leave its target for the federal funds rate unchanged at the meeting in March.
“There is a reason why companies went outside of the U.S.,” said Gregor Hirt, chief investment officer at Allianz Global Investors. “Most of the time it was because it was cheaper and more productive.”
U.S. President Donald Trump speaks alongside entertainer Kid Rock before signing an executive order in the Oval Office of the White House on March 31, 2025 in Washington, DC.
Andrew Harnik | Getty Images
President Donald Trump is set Wednesday to begin the biggest gamble of his nascent second term, wagering that broad-based tariffs on imports will jumpstart a new era for the U.S. economy.
The stakes couldn’t be higher.
As the president prepares his “liberation day” announcement, household sentiment is at multi-year lows. Consumers worry that the duties will spark another round of painful inflation, and investors are fretting that higher prices will mean lower profits and a tougher slog for the battered stock market.
What Trump is promising is a new economy not dependent on deficit spending, where Canada, Mexico, China and Europe no longer take advantage of the U.S. consumer’s desire for ever-cheaper products.
The big problem right now is no one outside the administration knows quite how those goals will be achieved, and what will be the price to pay.
“People always want everything to be done immediately and have to know exactly what’s going on,” said Joseph LaVorgna, who served as a senior economic advisor during Trump’s first term in office. “Negotiations themselves don’t work that way. Good things take time.”
For his part, LaVorgna, who is now chief economist at SMBC Nikko Securities, is optimistic Trump can pull it off, but understands why markets are rattled by the uncertainty of it all.
“This is a negotiation, and it needs to be judged in the fullness of time,” he said. “Eventually we’re going to get some details and some clarity, and to me, everything will fit together. But right now, we’re at that point where it’s just too soon to know exactly what the implementation is likely to look like.”
Here’s what we do know: The White House intends to implement “reciprocal” tariffs against its trading partners. In other words, the U.S. is going to match what other countries charge to import American goods into their countries. Most recently, a figure of 20% blanket tariffs has been bandied around, though LaVorgna said he expects the number to be around 10%, but something like 60% for China.
What is likely to emerge, though, will be far more nuanced as Trump seeks to reduce a record $131.4 billion U.S. trade deficit. Trump professes his ability to make deals, and the saber-rattling of draconian levies on other countries is all part of the strategy to get the best arrangement possible where more goods are manufactured domestically, boosting American jobs and providing a fairer landscape for trade.
The consequences, though, could be rough in the near term.
Potential inflation impact
On their surface, tariffs are a tax on imports and, theoretically, are inflationary. In practice, though, it doesn’t always work that way.
During his first term, Trump imposed heavy tariffs with nary a sign of longer-term inflation outside of isolated price increases. That’s how Federal Reserve economists generally view tariffs — a one-time “transitory” blip but rarely a generator of fundamental inflation.
This time, though, could be different as Trump attempts something on a scale not seen since the disastrous Smoot-Hawley tariffs in 1930 that kicked off a global trade war and would be the worst-case scenario of the president’s ambitions.
“This could be a major rewiring of the domestic economy and of the global economy, a la Thatcher, a la Reagan, where you get a more enabled private sector, streamlined government, a fair trading system,” Mohamed El-Erian, the Allianz chief economic advisor, said Tuesday on CNBC. “Alternatively, if we get tit-for-tat tariffs, we slip into stagflation, and that stagflation becomes well anchored, and that becomes problematic.”
The U.S. economy already is showing signs of a stagflationary impulse, perhaps not along the lines of the 1970s and early ’80s but nevertheless one where growth is slowing and inflation is proving stickier than expected.
Goldman Sachs has lowered its projection for economic growth this year to barely positive. The firm is citing the “the sharp recent deterioration in household and business confidence” and second-order impacts of tariffs as administration officials are willing to trade lower growth in the near term for their longer-term trade goals.
Federal Reserve officials last month indicated an expectation of 1.7% gross domestic product growth this year; using the same metric, Goldman projects GDP to rise at just a 1% rate.
In addition, Goldman raised its recession risk to 35% this year, though it sees growth holding positive in the most-likely scenario.
Broader economic questions
However, Luke Tilley, chief economist at Wilmington Trust, thinks the recession risk is even higher at 40%, and not just because of tariff impacts.
“We were already on the pessimistic side of the spectrum,” he said. “A lot of that is coming from the fact that we didn’t think the consumer was strong enough heading into the year, and we see growth slowing because of the tariffs.”
Tilley also sees the labor market weakening as companies hold off on hiring as well as other decisions such as capital expenditure-type investments in their businesses.
That view on business hesitation was backed up Tuesday in an Institute for Supply Management survey in which respondents cited the uncertain climate as an obstacle to growth.
“Customers are pausing on new orders as a result of uncertainty regarding tariffs,” said a manager in the transportation equipment industry. “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.”
While Tilley thinks the concern over tariffs causing long-term inflation is misplaced — Smoot-Hawley, for instance, actually ended up being deflationary — he does see them as a danger to an already-fragile consumer and economy as they could tend to weaken activity further.
“We think of the tariffs as just being such a weight on growth. It would drive up prices in the initial couple [inflation] readings, but it would create so much economic weakness that they would end up being net deflationary,” he said. “They’re a tax hike, they’re contractionary, they’re going to weigh on the economy.”
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A man pushes his shopping cart filled with food shopping and walks in front of an aisle of canned vegetables with “Down price” labels in an Auchan supermarket in Guilherand Granges, France, March 8, 2025.
Nicolas Guyonnet | Afp | Getty Images
Annual Euro zone inflation dipped as expected to 2.2% in March, according to flash data from statistics agency Eurostat published Tuesday.
The Tuesday print sits just below the 2.3% final reading of February.
So called core-inflation, which excludes more volatile food, energy, alcohol and tobacco prices, edged lower to 2.4% in March from 2.6% in February. The closely watched services inflation print, which had long been sticky around the 4% mark, also fell to 3.4% in March from 3.7% in the preceding month.
Recent preliminary data had showed that March inflation came in lower than forecast in several major euro zone economies. Last month’s inflation hit 2.3% in Germany and fell to 2.2% in Spain, while staying unchanged at 0.9% in France.
The figures, which are harmonized across the euro area for comparability, boosted expectations for a further 25-basis-point interest rate cut from the European Central Bank during its upcoming meeting on April 17. Markets were pricing in an around 76% chance of such a reduction ahead of the release of the euro zone inflation data on Tuesday, according to LSEG data.
The European Union is set to be slapped with tariffs due in effect later this week from the U.S. administration of Donald Trump — including a 25% levy on imported cars.
While the exact impact of the tariffs and retaliatory measures remains uncertain, many economists have warned for months that their effect could be inflationary.
This is a breaking news story, please check back for updates.