Update 855 – Import “Liberation Day”
As Trump Recasts US Tariff Rates
Yesterday constituted what may be the most consequential day of U.S. and global economic policy in over a century. It was anybody’s guess as to how President Donald Trump would structure his tariff announcement, from country-by-country calculations or establishing sectoral standards and reciprocal duties. Some suggested he was just going to levy a single across-the-board tariff. Instead, the President shocked the world by unveiling his “discounted reciprocal” tariffs along with a blanket 10 percent tariff – bringing the average tariff rate in the U.S. up substantially, from 2.5 percent to 22 percent.
International capital markets have dropped rapidly in response, and trading partners have tried to seek balanced policy positions as foreign leaders grapple with this new economic world order. American industrial purchasers and retail consumers are also bracing for price hikes as we await retaliatory actions. The President took the world order by storm yesterday. Today, we dive into how we got here and analyze the disorienting details below…
Best,
Dana
It was Donald Trump’s so-called “Liberation Day” in the Rose Garden on Wednesday as the President ushered in a new era of American trade policy. Here are the quick facts from a historic day:
- “Discount Reciprocal Tariffs:” Effective April 9, the President revealed double-digit tariff rates on dozens of trading partners. President Trump claimed that each tariff rate was determined through a holistic consideration of both tariff and non-tariff trade barriers placed on the U.S. by each foreign country. However, the tariff rate placed on each country appears to have been calculated by taking the U.S. trade deficit with each country and dividing it by that country’s exports to the U.S., then halving that figure in certain cases to reflect what President Trump described as “kind reciprocal tariffs.”
- 10 percent Baseline Tariff: For all countries, a blanket 10 percent duty will be charged to imports into the United States starting April 5.
- Auto Tariffs Take Effect: Previously announced tariffs of 25 percent went into effect on cars on Thursday, while auto parts will face a 25 percent tariff on May 3.
- De Minimis Loophole Eliminated: The President also signed an Executive Order to end the exemptions for low-value goods – those which are valued at less than $800 – to enter the U.S. without incurring a duty, effective May 2. The President attempted to do this in February but delayed the order to give the U.S. Customs and Border Protection and the Postal Service time to prepare for this massive adjustment with over a billion de minimis shipments entering the country last year.
Background
America First Trade Policy and Reciprocity
First, let’s take a step back and see how we got here. Within hours of his second term as President of the United States, Donald Trump issued the “America First Trade Policy” memo. This memo set the stage for sweeping reviews of American trade policy. These studies would review trade deficits, America’s standing in trade agreements, trading partners’ trade barriers, and other trade-related issues. This memo set the stage for what has turned out to be the most dramatic shift in trade policy in a century, with the President wielding unprecedented power to levy tariffs and upend the global economy. For more information regarding the history of growing executive power to wield tariffs, take a look at our February deep dive into the first tranche of Trump’s chaotic trade announcements.
Trump views tariffs as a key tool to “rebalance” the global economy and to build, as he claims, “a robust and reinvigorated trade policy that promotes investment and productivity, enhances our Nation’s industrial and technological advantages, defends our economic and national security, and — above all — benefits American workers, manufacturers, farmers, ranchers, entrepreneurs, and businesses.” Not only does he think it can bring vast manufacturing back to American soil, but he firmly believes such broad tariffs can raise historic revenues. He and his advisors estimate his tariffs can raise $6 trillion over the next decade, which could then be used to pay for tax cuts.
Further illuminating Trump’s vision for his novel trade regime, the President released the “Memorandum on Reciprocal Trade and Tariffs” on February 13. This memo – which put American trading partners on high alert – narrowed in on “determining the equivalent of a reciprocal tariff with respect to each foreign trading partner.” A reciprocal tariff policy in practice would mean that if a country had a tariff rate of 6 percent on U.S. exports, then the U.S. would match that rate on goods from that country. The President also claimed to use non-tariff barriers in his final determinations, which included bilateral trade deficits, the use of Value-Added Taxes (VAT), trade quotas, and nonmonetary barriers.
Source: New York Times
IEEPA Enacted Once Again
Well, the reviews are in. The months-long studies that informed Trump’s calculations led the President to declare a national emergency, thus unlocking broad executive power to levy these tariffs. The International Economic Emergency Powers Act (IEEPA) grants the President sweeping powers to regulate international commerce in times of national emergency. He exercised this power first in his announcement of tariffs on Canada, Mexico, and China by declaring a national emergency at America’s borders – citing an influx of illegal immigrants and fentanyl.
His rhetoric throughout his speech on Wednesday was extreme as he outlined what he claims to be a dire situation for America in the global economy as a victim of decades of mistreatment. Referencing the United States as being “ripped off” by trading partners for 50 years and blaming past American presidents for their lack of leadership, he believes he is now ushering in a new “Golden Age” for America in a time of declared emergency to be solved through his economic agenda.
A Closer Look
During his announcement in the Rose Garden, the President welcomed Commerce Secretary Howard Lutnick to the stage to reveal a graphic that displayed the new tariff rates of dozens of countries. The President claims the rates of other countries were calculated as “the combined rate of all their tariffs, nonmonetary barriers, and other forms of cheating.” Then, to calculate the United States’ new tariff rate, his team cut that number in half. Reporters and analysts quickly noted that the President’s rationale for this math did not quite add up. Instead, reporting suggests these new rates were based on each country’s relative trade deficit with the United States.
While dozens of countries were hit with new rates, let’s take a look at a few countries of particular note:
China
China’s effective tariff rate jumped to 54 percent yesterday. With the announcement of a 34 percent rate as well as a standing 20 percent tariff, China now faces one of the highest duties out of all U.S. trading partners. However, there is still some uncertainty regarding how the administration plans to stack the tariff rates moving forward, with some reports from Barron’s revealing conflicting information out of the White House. The United States imports nearly $500 billion worth of goods from China each year.
- European Union
The EU’s tariff rate was calculated to be 20 percent. The President took particular aim at the bloc in his address by calling them “pathetic” and condemning their 10 percent tariff on foreign-made cars, along with what seems to be the bane of his existence – their Value-Added Tax (VAT) of 20 percent. He also pointed out that the Union blocks almost all American poultry. These apparent affronts to the United States allegedly informed the President’s calculations and the resulting announcement outraged the EU, which has vowed retaliation.
Vietnam
With one of the highest rates announced Wednesday, Vietnam will face a 46 percent tariff. A growing trade partner with the U.S., imports totaled around $140 billion in 2024. In particular, the apparel industry has a strong foothold in Vietnam with household names – like Nike and Hoka – manufacturing their goods in the country.
Mexico and Canada
North American trading partners largely ducked tariff hikes on Wednesday. Previously announced tariffs targeting the partners regarding immigration concerns and fentanyl crossing American borders will remain in place with relevant USMCA carve-outs.
If we take a moment to zoom out, it is safe to say that the global trading system has been completely upended. In one afternoon, the President ended decades of trade norms – many of which were heralded in by the United States – based on a completely new ideology. In his address, the President recalled a time when the U.S. was a “tariff nation.” Until 1913 and the introduction of the income tax, the country raised vast wealth through tariffs, and according to Trump, so much so that a commission had to be created to find ways to spend the revenues. However, we are not the country we were at the turn of the 20th century. Our economy is intensely interconnected with supply chains that cross the globe, and we are better off when we allow the basics of economics and comparative advantage to prioritize our resources. Even so, he claimed the elimination of broad tariffs in the early 1900s actually caused the Great Depression when, in reality, the only comparable tariff agenda to what he has just enacted – the notorious Smoot-Hawley Tariffs of 1930 – actually worsened the Great Depression. Still, the President claims his strategies will reclaim a “Golden Age” for the U.S.
Concerns and Economic Impacts
Businesses big and small, world leaders, and consumers are parsing through this barrage of information to see what it means for them. Broadly, economists agree that Trump’s tariff plans mean a chaotic environment for businesses to navigate and negative impacts on what was a strong U.S. economy.
A Massive Hit to A Strong Economy
Additional tariffs could lead inflation – which has cooled significantly over the past two years – to rise once more. Last month, Federal Reserve Chair Jerome Powell noted that further progress in lowering inflation might be delayed due to the imposition of tariffs. He also noted that inflation has already started to rise, an increase the Fed believes is partly in response to tariffs.
The Fed is not alone in concerns regarding the threats to the health of the American economy, with Bloomberg Economics estimating that if Trump’s extreme threats were implemented – bringing the average tariff rate up to 28 percent – GDP would shrink by 4 percent and prices would jump 2.5 percent over 2-3 years.
Since tariffs are duties paid for by the importer, American firms that import foreign products have to then decide if they will eat the cost and cut into their bottom line or pass it along to their consumers. The Yale University Budget Lab’s model of a “reciprocal” tariff policy – in which the U.S. matched other countries’ tariff and VAT rates – would cost the average U.S. household between $2,700 and $3,400. Similarly, the Lab’s estimates for an across-the-board 20 percent tariff would cost consumers between $3,400 and $4,200. Tariffs are a regressive tax, and those in the lowest income brackets would be subject to a more significant financial burden.
Consumers and Voters Voice Their Concerns
Consumers are also taking note. Trump’s campaign promises, along with his focus on tariffs in his first months in office, have raised the salience of tariffs in the American psyche – and Americans are letting him know how they feel about the uncertainty. March consumer sentiment – as measured by the University of Michigan index – fell 12 percent from February to 57 percent, with a total loss of 30 percent since Trump was elected in November. Sentiment has hit its lowest level since 2022. The report outlining its findings also revealed a hit to inflation expectations: “As of March 2025, long-run (inflation) expectations have climbed sharply for three consecutive months and are now comparable to the peak readings from the post-pandemic inflationary episode. They exhibit substantial uncertainty, particularly in light of frequent developments and changes with economic policy.”
Trump’s approval rating fell to its lowest level since he returned to office – 43 percent – this week, as Americans anticipated his announcement of sweeping tariffs. Only 37 percent of Americans approve of Trump’s handling of the economy, and even fewer – 30 percent – approve of his work to address the high cost of living. The majority of Americans also believe that the Trump administration’s increased tariffs on autos and auto parts confirmed yesterday will hurt people close to them and that increasing tariffs will do more harm than good.
Source: Reuters
Concerns Fall on Deaf Ears in the White House
The Trump administration has failed to acknowledge the full extent to which his tariffs and broader economic policy will likely harm American families.
On Saturday, Trump said that he “couldn’t care less” whether car prices increase due to his 25 percent tariff on imported cars and auto parts, even saying, “I hope they raise their prices, because if they do, people are going to buy American-made cars.” Last month, he asked farmers and ranchers who disproportionately face retaliatory tariffs to “bear with me again” in discussing his tariffs on agricultural products. Agriculture Secretary Brooke Rollins said the President directed her to “have some programs in place that would potentially mitigate any economic catastrophes that could happen,” but no such federal assistance program for farmers and ranchers has been officially announced.
Trump and his senior officials have continued to minimize the coming impact of tariffs on consumers broadly, with his senior economic advisors referring to a period of reorientation and Trump saying last month, “We may have some, short-term, a little bit of pain and people understand that.”
Push Back
Retaliation Threats
As countries wade through their retaliatory options in the days after the announcements, many now have to decide how they will respond. Some vow retaliatory tariffs – like the EU and China – while some may take the opportunity to reach out to the Trump administration to negotiate. The United Kingdom released a 400-page document outlining potential targets in their retaliatory threats as they push forward in negotiations with the U.S. The EU continues to ready retaliatory measures on previously announced steel and aluminum tariffs and plans to put together another package in reaction to Wednesday’s announcements if negotiations fail.
The new tariff rates take effect on April 9, allowing some time for countries to strike a deal. Notably, Southeast Asian countries that were hit particularly hard by the Trump administration are among those who have the most to gain from talks. We can expect world leaders to announce their responses in the coming days and weeks.
Source: Reuters
Democratic Response
Democrats across the country continue to slam the President for his actions Wednesday. Senate Minority Leader Chuck Schumer (D-NY) characterized the tariffs as “a disaster” and as a “huge tax hike on American families.” Democrats in the House plan to attempt to force a vote to challenge Trump’s “national emergency” declaration justifying these sweeping tariffs.
In a historic feat, Senator Corey Booker of New Jersey held the Senate floor for a record-breaking 25-hour speech in which he decried Trump’s dangerous policies since taking office, including his tariff plans. Democrats kept their momentum in criticizing Trump’s economic policies this week as the Senate narrowly passed legislation – 51-48 – to end the National Emergency used to justify the tariffs on Canada. While the executive enjoys broad powers under IEEPA, there is a provision that allows for Congress to step in to terminate a declared national emergency. However, it is unlikely to see any daylight when the House returns. Notably, four Republicans joined all Democrats in support of Senator Tim Kaine’s (D-VA) bill:
- Susan Collins (Maine)
- Mitch McConnell (Kentucky)
- Lisa Murkowski (Alaska)
- Rand Paul (Kentucky)
This vote underpins a larger concern among congressional Republicans who may be quietly nervous about how these new policies will affect their constituents. Retaliatory tariffs on agricultural products disproportionately affect red districts, and Congress will soon have to answer to this reality.
On Thursday, Republican Senator Chuck Grassley (IA), along with Democratic Senator Maria Cantwell (WA), introduced legislation – the Trade Review Act of 2025 – that would require notification to Congress of new tariffs with an appropriate rationale and analysis within 60 days. In an attempt to bring tariff levying powers back to the legislative branch – where it is constitutionally granted powers – the Senators hope to reclaim control.
Concluding Thoughts
Looking ahead, many questions remain unanswered. How will countries respond? Will this escalate to a back-and-forth trade war where tariff rates are matched and raised? Are bilateral deals in the works? Some hints were revealed on what we can expect next in the Executive Order signed Wednesday, which linked to an annex of exempted products. Many of these products are either under investigation or already have their own tariff rates. We can look to this list perhaps to see what announcements are coming down the pipeline – including on pharmaceuticals and critical minerals.
Markets continue to shutter at the idea of a completely reworked economic trading system, and businesses brace themselves for a roller-coaster four years in which the President will likely continue his chaotic recalibration of the American economy. While the administration has asked for some grace in the coming months as these shifts will take months to years to see – what they claim will be – mass reshoring of manufacturing and American job creation, the American public has to decide if it is worth the painful wait. Americans did not seem to be willing to give Bidenomics the grace of a long-term view as they grappled with momentary price hikes. Will they give President Trump a longer leash?