Market’s roiled worldwide as President Donald Trump’s promised April 2nd date for reciprocal worldwide tariffs arrived with stunning force. Every country was hit with at least a 10% tariff rate, which went into effect on April 5th. The rates didn’t stop at the baseline 10% worldwide tariff that took effect today at 12:01 AM; the “reciprocal” rates are set to go into effect on April 9th, with some countries receiving rates as high as 50%.
The spark of a worldwide trade war sent both American and international markets into free fall, with the Dow Jones futures plummeting 2,200 points and losing a cumulative 10% in just two days. With the reciprocal tariff date quickly approaching, investors and markets are watching with bated breath to see what effects the reciprocal tariffs will have, as JPMorgan raises the odds of a global recession this year to 60%.
No Stranger
President Trump is no stranger to utilizing tariffs as a pivotal part of his “America First” agenda. Trump views tariffs as a tool to attempt to bring manufacturing back into the United States and obtain “fair” deals. In his first term, Trump imposed tariffs on both friend and foe alike. On China, Trump imposed a 25% tariff on $50 billion worth of Chinese exports, with China reciprocating by imposing a 25% rate on $16 billion worth of U.S. imports in 2018. On key trading partners such as Mexico, Canada, and the European Union, Trump imposed a 5% tariff on Mexico with a planned escalation to 25% over a four-month period. Canada and the European Union became subject to a 25% tariff on steel and a 10% tariff on aluminum imports in 2018, before becoming exempt a year later in May 2019.
The effects of his first-term trade war, which pale in comparison to the actions he undertook Wednesday afternoon, have drawn mixed reviews in terms of their effectiveness—with the Federal Reserve Bank of New York concluding that U.S. firms and households were worse off because of the tariffs by a factor of 3%. With President Biden keeping many of the Trump tariffs in place, that 3% manifested into an annual tax increase of around $200-$300. As for examples of targeted tariffs on washing machines, the increased tariff rate did help spur the creation of 1,800 new jobs at Whirlpool, Samsung, and LG within the United States. However, appliance prices significantly increased over the five-year period they remained in effect (February 2018–February 2023), rising by 23%.
The Game Plan
Trump’s game plan seems to be a high-wire gamble of “high risk and high reward.” Key officials like Secretary of Commerce Howard Lutnick have stated that “short-term” market pain will give way to greater economic growth in the “long-term.” Even as markets are falling in numbers so high that they are entering a “bear market”—a term coined to define when stocks fall by 20% or more from a recent high as investors sell off stock in massive numbers—markets continue to slump. Wall Street is searching for a sign that the market has bottomed out but is failing to reach a consensus, with some economists saying that the worst is yet to come. Despite the pessimism, the architects of Trump’s plan seem confident that this high-wire strategy will lead to fruits in the years to come—especially Peter Navarro.
Navarro, the chief counselor of trade and manufacturing for President Donald Trump, helped steer the President on the effectiveness of tariffs by curiously inventing an economist named “Ron Vara,” based on his own credentials, to justify his own economic theory. This curious invention has drawn the ire of Democrats, who point to the misguided assumptions and credibility the President is acceding to. But Navarro has remained unfazed. He has demonstrated staunch loyalty to the President, electing to go to prison rather than testify before the January 6th select committee. He also appeared on CNN to defend the President, stating that it’s only fair for the President to “charge those countries what they charge us.” But in morning developments, this response showed inner turmoil within the administration, with Elon Musk taking jabs at Navarro on X.
Musk did not hold back this morning in a tweet questioning Navarro’s credentials from Harvard, proclaiming it to be a “bad thing,” and that Navarro himself hasn’t built “sh*t.” Musk’s comments come as the rift between himself and the President over U.S. trade policy continues, and as his own company, Tesla, suffered more than $23 billion worth of losses just on Friday. Musk took it a step further, proclaiming today via videolink at a congress convened in Florence for Italy’s right-wing party, that he’d like to see 0 tariffs between the United States and Europe—representing a significant break with the President of the United States.
Liberation Day
Liberation Day, proclaimed so by President Trump on Wednesday, April 2nd, represented the biggest shift in U.S. trade policy over the last 80 years. The worldwide tariff hike represented the biggest since the Smoot-Hawley Tariff Act of 1930, which raised tariffs on over 20,000 imported goods to help assuage the worst economic effects of the Great Depression—but some economists say it had the opposite effect. The effects of the tariffs dropped U.S. imports by a standard of ⅔ over a three-year period after it was enacted and cut sales abroad by a similar percentage. Trump’s tariffs can be likened to Smoot-Hawley. The rates, purportedly calculated by taking into account trade barriers and currency manipulation, were rather calculated via bilateral trade deficits in goods, and given the unbalanced nature of bilateral trade, some firms purport that this is a wholly arbitrary process in calculating tariff policies.
As a result of the President’s proclamations, markets were sent into a tumble, with stocks losing over $3 trillion in value and high-profile companies like Apple losing billions of dollars in value. As the United States imposed these tariffs, China, which was slapped with a 34% tariff rate, responded in kind by raising its tariff rate to 34% on all U.S. imports. This development sank markets to new lows as tech companies like Apple, Tesla, and Microsoft—who rely upon imports from China—lost billions of dollars in valuation because of the reciprocal tariff rate imposed.
The full effects of Trump’s “Liberation Day” tariffs have yet to be seen, but in the following weeks and months their effects will surely elucidate themselves and according to economists may cause the global economy to sink into recession.
“My fellow Americans, this is liberation day”
President Donald Trump
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