Trump Tariffs Everything: What Next?

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On Wednesday afternoon, as part of what he called "Liberation Day," U.S. President Donald Trump announced a sweeping set of tariffs. These included a 10% universal tariff on all imports into the U.S., a 34% tariff on Chinese imports in addition to the existing 20% tariff, and a 20% tariff on all EU imports.

It is difficult to overstate how significant this move is—assuming it actually takes effect. CNBC has described it as worse than the worst-case scenario for markets. In this video, we will explore what happened on Liberation Day and what might come next.

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Context

Leading up to Liberation Day, there was considerable ambiguity regarding the specific tariffs Trump intended to impose. In a White House memorandum released in February, he promised "reciprocal tariffs," a concept he frequently mentioned during his campaign. He pledged “an eye for an eye, a tariff for a tariff, the exact same amount.”

At first glance, this approach might seem reasonable. The U.S. does, in fact, have lower tariffs than many other countries. If you subscribe to Trump’s mercantilist economic philosophy, you might view this as unfair since it makes it harder for American companies to export their goods while making it easier for foreign companies to sell in the U.S. Some might argue that reciprocal tariffs encourage free trade globally—if other countries lower their trade barriers, the U.S. would follow suit.

However, upon closer examination, this policy presents serious challenges. For instance, if reciprocity were applied at the individual product level rather than on a country-by-country basis, it would become highly complex. The U.S. tariff schedule currently covers approximately 13,000 items, and the U.S. trades with roughly 200 countries. This means Washington would need to manage 2.6 million individual tariff rates.

Additionally, a strict application of reciprocity would lead to some contradictory policies. For example, the U.S. would need to significantly reduce its 100% tariff on Chinese electric vehicle (EV) imports—a measure that Trump strongly supported.

Adding to the complexity, Trump clarified in March that his concept of reciprocity would extend beyond tariffs to include non-tariff barriers such as currency devaluation, which impacts demand for American goods, and trade-related taxes. He was particularly fixated on the EU’s value-added tax (VAT), despite the fact that most countries—not just the EU—use VAT, and it applies equally to both domestic and foreign goods.

Moreover, how Trump's team calculated the effective tariff rate—including non-tariff barriers—remained unclear.

Given this uncertainty, there was some market optimism leading up to Trump's announcement. The S&P 500 rose for three consecutive days before Liberation Day, recovering from earlier losses, and the U.S. dollar remained relatively stable. Many investors hoped that Trump and his team were merely using the threat of reciprocity to extract concessions from trading partners, rather than implementing extreme measures. However, those hopes were dashed when Trump made his actual announcement.

Trump's Tariffs Explained

Instead of a measured approach, Trump announced one of the largest single-day tariff increases in history. These tariffs applied broadly, not just to specific products but to entire countries.

• A 10% tariff on all imports into the U.S.

• A 34% tariff on Chinese imports, on top of the existing 20%, bringing the total to 54%.

• A 32% tariff on Taiwanese imports.

• A 20% tariff on EU imports.

• A 10% tariff on UK imports.

How these tariffs align with the principle of reciprocity remains unclear. During his speech, Trump presented a chart suggesting that these tariffs were set to match or be roughly half the effective rates that these countries impose on U.S. goods. However, the method used to determine these rates was not explained.

For example, Trump claimed that the EU imposes a 39% tariff on American imports. However, the latest data from the World Trade Organization (WTO) suggests that the trade-weighted average tariff on U.S. imports into the EU is actually less than 2%. Similarly, Brazil—known for its high trade barriers—was hit with only a 10% tariff, the same as Singapore, which is recognized for its free-trade policies. Meanwhile, Russia appeared to receive an exemption for unknown reasons, and even Israel, which recently eliminated tariffs on U.S.-Israeli trade, was subjected to a 17% tariff.

What’s Next?

What does this mean for the American and global economies?

Even economists who support tariffs acknowledge that these measures will cause significant short-term disruption.

Impact on the U.S. Economy

At the time of writing, the S&P 500 had dropped 3% and was continuing to decline—a significant drop. While the stock market is not the same as the real economy, it plays a crucial role, particularly in consumer spending. The wealthiest 10% of Americans account for half of all spending, and their behavior is heavily influenced by stock market fluctuations.

While reduced demand might typically lower prices, these tariffs are expected to drive inflation higher by making imports more expensive. This creates a dilemma for the Federal Reserve, which may find itself stuck between a stagnant economy that needs lower interest rates and persistent inflation that requires higher rates.

Impact on the Global Economy

The effects on the global economy are equally concerning. These tariffs will disrupt trade, and their severity makes retaliatory tariffs almost inevitable. Many affected countries may see this as the only viable way to negotiate with Trump, further escalating tensions and economic instability.

Ultimately, we are in uncharted territory. The impact of these policies will unfold in the coming weeks and months. If you want to stay informed on how this situation develops, be sure to subscribe to our updates.

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