On April 2, Trump unveiled his plans for “Liberation Day” (April 9th), as the White House unveiled their long-awaited (or long-dreaded) tariff plan to the American public and the global economy. Trump promised an across-the-board 10% tariff on all imports, with additional rates to ostensibly match other nation’s tariffs on US goods, thus giving the United States the highest tariffs since the infamous Smoot-Hawley Tariffs of 1930 overnight. Trump’s unilateral action stems from leveraging a broad interpretation of the “International Emergency Economic Powers Act” which contains provisions to allow the President to restrict imports in so far as they relate to national security, in this case: tariffs to restrict fentanyl smuggling and unfair economic practices by other nations. It should be noted that the text of the law does not explicitly give the President the authority to impose tariffs, nor is it entirely clear that the bill was intended to combat the kind of economic manipulations that the President alleges.
Wall Street’s reaction was immediate and grave, with the Dow Jones falling by more than 4,000 points over two days, one of the worst in the index’s history, with similar falls by the NASDAQ and S&P 500. Confidence reached further lows when it was discovered that the “reciprocal tariffs” were equal parts eclectic as they were punitive and seemed entirely divorced from the actual tariff rates imposed on US goods. Experts balked that uninhabited Antarctica islands received a 29% tariff, the Falkland Islands received 42% tariffs, and Vietnam received a 46% tariff, which is higher than China’s. Notably, Russia was absent from the reciprocal tariff list. Further analysis revealed that the tariffs were not calculated by actual tariff rates, but instead by the trade deficit of the two nations divided by two.
Compounding the market flight was a similar drop in confidence in the US bond market, whose interest yields jumped from 4 to 4.5 in the aftermath of the announcement. Normally, when the stock market is falling, investors turn toward US treasury bonds, backed by the full faith and credit of the United States government, as a safe investment. When the stock market and the bond market both reacted poorly, it signaled that investors were losing faith in the largest and most important bond market in the world. This led to similar market flights in Asian and European stocks and bonds and the USD depreciating in value.
Though President Trump seemed fine with the stock market falling, considering it a part of the pain process, the early tremors of the bond market correlate with his immediate about-face with the tariff policy, giving a 90-day suspension for implementation, except for China’s. This led to a brief market rally, though stocks still have not caught up to the pre-tariff highs. However, specific exemptions were given to Chinese technological products a few days later. This did not calm the international waters, as both China and the European Union raced to implement their own tariffs, with the latter delaying their implementation once Trump backed down. China has maintained its own 84% rate on US imported goods, thus pitting the world’s largest consumer and producers, and a combined 40% of the global economy, against each other. What’s more is that China has made diplomatic inroads with fellow East Asian nations, like traditional US allies South Korea and Japan, and even its historic enemies like Vietnam, as the continent coordinates a collective response to US tariffs.
Though the global economy was granted a temporary reprieve from massive tariffs, there is no guarantee that come the 90 days, Trump will still implement the tariffs. Even if he does abandon what has been a flagship issue of his platform, going back to his stint as president, investors and the international community are not likely to return to the prior status quo, given the erratic nature of Trump’s administration. Reportedly, the only thing holding Trump in check is being responsible for causing another “1929,” put another way: his ego.
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