Trump’s Tariff-driven “Liberation Day”

Trump announces reciprocal tariffs across the globe on April 2nd, 2025. Source: WSJ

​On April 2, 2025, President Donald Trump gave a news conference at the White House Rose Garden, proclaimed "Liberation Day," marking the initiation of extensive tariffs aimed at addressing perceived inequities in international trade. The administration asserts that these "reciprocal" tariffs are designed to counteract unfair trade practices and reduce the U.S. trade deficit.

The tariff strategy encompasses a 10% baseline tariff on imports from all countries, effective April 5. Additionally, higher tariffs have been imposed on 57 nations identified as having non-reciprocal or discriminatory trading practices. For instance, China faces a base 145% tariff, which escalated from a baseline rate of 34% because the Chinese government did not remove its own reciprocal tariffs. Adding to the final tariff total, China faced a 20% tariff as punishment for the alleged role it plays in the U.S. fentanyl crisis.

Other affected trading partners include South Korea (25%), Japan (24%), and the European Union (20%). These tariffs are intended to match or counterbalance the tariffs and trade barriers that these countries purportedly impose on U.S. exports. ​According to the BBC, a formula published by the White House indicates that the tariff levies were calculated by taking the U.S. trade deficit in goods with a specific country, dividing it by the total value of goods imported from that country, and then by taking half of that result.

President Donald Trump has consistently advocated for the use of tariffs as a strategic tool to bolster the U.S. economy and address trade imbalances. He has previously described tariffs as "the greatest" and emphasized their role in negotiating fair trade deals. In his view, imposing tariffs compels countries that have treated the U.S. unfairly in trade to negotiate equitable agreements, thereby protecting American industries and workers.

The implementation of these tariffs has elicited swift reactions both domestically and internationally. Financial markets have experienced volatility, with significant declines attributed to fears of escalating trade wars and their potential impact on global economic growth.

China has condemned the U.S. actions as unilateral and coercive, vowing to "fight to the end" and announcing its own set of retaliatory tariffs. Other nations, including Japan and India, have initiated diplomatic efforts to negotiate exemptions or mitigate the impact on their economies. Japan, for instance, dispatched a diplomatic team to Washington to seek reconsideration of the tariffs affecting its key industries in automaking and steel production. ​

While several countries have already sought negotiations with the U.S. to address these tariffs, other nations have attempted to address the economic shock internally. For example, South Korea launched a $2 billion aid package for its auto sector, which faces a 25% U.S. tariff. India's central bank cut interest rates to address export concerns, while stock markets across Asia reported contractions.

Economists warn that these tariffs may lead to increased consumer prices across various goods, as import costs are passed on to consumers. In the days following the tariffs, a post showing a potential estimation of the latest iPhone costing anywhere from $350 to $2,500 went viral. Additionally, U.S. exporters may face reduced demand due to retaliatory tariffs imposed by other countries, potentially affecting American jobs and industries reliant on international markets.

In the United States, drastic stock market volatility has led to fears of a tariff-induced recession. Business leaders are scrambling to adjust to the quick changes, and will face potentially permanent enormous price increases in the adjustment period. Tariffs have long been associated with economic shocks and even recessions. For example, the Great Depression is widely understood to have been extended and worsened by the infamous Smoot-Hawley tariffs of 1930, an extensive increase in the amount of tariffs on foreign goods. The interconnected nature of modern economies means that prolonged trade disputes can have far-reaching consequences, potentially leading to supply chain disruptions and decreased investor confidence.

Seven days after announcing the tariffs, Trump rolled back most of the levies for 90 days in a surprise post on his social media website. The stock market rallied around the news, but the tariffs on China were raised to a further 145%, while the blanket 10% tariff on all imports will remain. Mexico and Canada will continue to face a 25% tariff on all imports due to alleged fentanyl trafficking.

The long-term effects of this massive change to United States economic policy remain to be seen, but experts theorize that tariffs may shift global trade balances, create a stagflationary economy in the country, or even cause a stock market crash.