The paralysis of trade war: ‘Almost every client I talk to has a war room,’ KPMG exec says, ‘and the members have completely dropped their day job’

History can’t tell us. The past six days of tumultuous tariff whipsawing are unprecedented in U.S. history. It’s already hard to believe: Last Wednesday, President Trump imposed the heaviest tariffs the U.S. had levied since 1909, but only 12 hours later he “paused” them, leaving a universal 10% tariff, except on China, which faced a 145% tariff. Then, late Friday night, the administration announced it was reducing the Chinese mega-tariff, at least for smartphones (including Apple’s iPhones), computers, and other electronic equipment made in China. But two days later, it appeared those products would be subject to higher, unspecified tariffs. Trump posted, “Nobody is getting off the hook.” 

As of yesterday afternoon, Trump was considering tariff exemptions for imported vehicles and parts. Tomorrow, heaven knows. 

Business leaders desperately need to make significant responses to this environment, but how? The environment changes profoundly by the day. As KPMG’s U.S. supply chain leader Mary Rollman observes: “Almost every client I talk to has a war room. They get a team spun up, and the members have completely dropped their day job. Their job now is to watch the news and see what comes out next, and quickly be able to present to leadership.” However, most are not actually rearranging huge swaths of their business. By and large they are “working internally to model options and scenarios but not making major changes,” she says.

That stance is prudent but also a big problem. Every day that companies are frozen in place, the economy weakens. It’s especially true now because adapting to a radically new trade regime will be a long-term project. “These are not short-term decisions,” says Abe Eshkenazi, CEO of the Association for Supply Chain Management. “You can’t redirect the entire supply chain in six months. These are years in the making.” Yet companies so far can’t even start that project.

Another problem: The administration is rapidly losing its credibility with business leaders. The longer the trend carries on, the more likely it becomes that companies will respond to the new environment slowly and timidly. As a result, economic growth could slow, setting off a self-reinforcing downward spiral. 

Bottom line, companies are playing defense, not offense, and it’s hard to win that way. Frustratingly, that’s about all they can do. Maybe the best advice for business leaders right now? Watch closely, do little. The time for action will come.

More news below.

Contact CEO Daily via Diane Brady at diane.brady@fortune.com

Top news

Auto tariffs on hold, maybe. President Trump said he was open to the idea of giving the auto industry a period of respite to move their supply chains to the U.S.

Zuck to testify again today. The Meta founder will take the stand for a second day in the FTC’s case that threatens to force his company to split up Facebook, Instagram, and Whatsapp. 

Junk bond market frozen. The market for high-yield corporate bonds has ground to a halt with zero issuance since Trump’s “Liberation Day.” The private equity sector is highly dependent on junk debt to fund takeovers and the freeze threatens the cash lifelines of riskier companies that cannot survive without debt funding.

Is China selling U.S. bonds? It’s not clear. China holds a lot of U.S. Treasuries — so selling them would hurt Beijing as much as Washington. Having said that, damaging the U.S. bond market is a pretty good way to fight a trade war.

A majority of CEOs predict recession. More than 60% of the CEOs that responded to a new survey by Chief Executive say they believe either a recession or economic slowdown is coming in the next six months. That’s compared to 48% of CEOs who said the same in a survey by the same magazine last month. 

In conversation with Palantir CEO Alex Karp. Fortune’s Michal Lev-Ram sat down with Palantir co-founder and CEO Alex Karp to discuss his recent book, The Technological Republic, “wokeness” in Silicon Valley, and how recession-proof the defense tech business is. Read the full interview here.

Airlines don’t want planes anymore. The CEOs of Ryanair and Delta Air Lines have both said they will delay purchases of new aircraft if international trade tariffs push up the cost.

Banks love chaos. Goldman Sachs, JPMorgan, and Morgan Stanley said they have earned $12 billion in fees on equity trades as investors scramble around Trump’s daily zig-zags—that’s more than they booked during the Covid panic.

Fortune 500 Power Moves. Molson Coors Beverage (No. 352 on the Fortune 500) announced that CEO Gavin Hattersley plans to retire by the end of the year. Hattersley has served as CEO since 2019, during which he’s helped revitalize the company and drive revenue up. The company’s board has begun the search for a successor.

Every Friday morning, the weekly Fortune 500 Power Moves column tracks Fortune 500 company C-suite shifts—see the most recent edition.

The markets

The Dow climbed more than 300 points on Monday as markets continue to rally on the prospect of tariff exemptions. That translates to a 0.78% increase, while the S&P 500 rose 0.79% and the Nasdaq jumped 0.64%. Context: The S&P is still down 8% YTD. Futures contracts on the index rose 0.3% this morning, pre-opening bell.

The gains continued this morning in global markets:

• Japan’s Topix was up 1%.
• The Stoxx Europe 600 was up 1% in early trading.
• The U.K.'s FTSE 100 was up nearly 1%.
• China’s two main indexes were flat.
• Hong Kong’s Hang Seng was up 0.2%

From the analysts

• Oxford Economics on mass deportations: “While a successful campaign of mass deportations from the US is not part of our baseline forecasts, it represents a substantial downside risk as it would likely raise costs and deplete demand. The sectors most exposed are construction, agriculture, parts of manufacturing, and several service sectors,” per Nico Palesch and Sebastien Tillett.
• JPMorgan on recession: “10% universal tariffs and 145% on China keeps recession risks at 60%,” per Bruce Kasman.
• EY on stagflation: “Assuming these tariffs remain in place indefinitely without exemptions or exclusions, our modeling shows that such a scenario would lead to stagflation,” per Gregory Daco.
• Wedbush on Apple: “The base case is numbers for 2025 and 2026 come down ~10% based on demand destruction and cost increases, 15%-20% in a worst case disaster scenario assuming no China negotiations and tariffs stay for months, and 2%-5% in a best case scenario if China negotiations speed up and cooler heads prevail by the summer timeframe,” per Daniel Ives et al.

Around the watercooler

Ark Invest’s Cathie Wood calls Trump tariffs ‘shock therapy’ that could clear the way for freer trade and economic stimulus by Alena Botros

Apple fans won’t stay loyal if tariffs mean $2000 iPhones, top analyst warns by Sheryl Estrada

China has stopped exporting rare earths to everyone, not just the U.S., cutting off critical materials for tech, autos, aerospace, and defense by Jason Ma

Goldman Sachs sees more room for gold to run higher, hiking its forecast for the precious metal due to growing recession risks by Christiaan Hetzner

LVMH sales slip 3% as luxury shoppers come face-to-face with tariff uncertainty by Prarthana Prakash

CEO Daily is compiled and edited by Joey Abrams and Jim Edwards.