Liberation Day 2025: A ‘Momentous Day’ in American History, But With Uncertain Consequences
President Donald Trump’s ambitious global tariff regime was formally announced at a gathering of his supporters on 2 April 2025, at a “Make America Wealthy Again” event in the Rose Garden of the White House, rather than on the previous day for obvious reasons, as he set out to punish “scavengers” and to protect American national interests. A universal baseline 10% tariff on imports of most goods to the US, effective from 5 April, will be followed by additional reciprocal tariffs on 57 countries that have set up trade barriers with the US, from 9 April onwards. In the words of the Office of the United States Trade Representative: “Reciprocal tariffs are calculated as the tariff rate necessary to balance bilateral trade deficits between the U.S. and each of our trading partners.”
The highest reciprocal tariffs have been imposed on a host of Asian exporting nations, including Cambodia (49%), Vietnam (46%), Sri Lanka (44%), Bangladesh (37%), Thailand (36%), China (34%), and Taiwan (32%). Lower down the list are India (26%), South Korea (25%), Japan (24%), and the EU (20%). The UK, Australia, New Zealand, and Brazil are among those treated leniently, subject to 10% tariffs. Canada, Mexico, Cuba, Belarus, North Korea, and Russia have escaped new tariffs, while the uninhabited Heard Island and McDonald Islands and the sparsely-populated Cocos (Keeling Islands) and Svalbard have been inexplicably targeted. These wide-ranging tariffs are expected to raise costs for US domestic consumers, thereby fuelling inflation, unless American companies are prepared to absorb the resulting increased costs of crucial imports. It must be remembered that tariffs are regressive taxes which disproportionately affect lower-income people who spend relatively more of their incomes on goods and are expected to particularly impact many loyal grassroots MAGA Republicans who returned Trump to power.
The US trade deficit, largest in the world and amounting to $1.2 trillion in 2024, does not sit well with an increasingly mercantilist American President, whose agenda is empowered by the International Emergency Economic Powers Act (IEEPA). This deficit has continued to rise since 2019, exceeding $1 trillion for four years in a row. China, Mexico, Vietnam and Ireland are the four major culprits as far as the US is concerned. In Trump’s own words: “For decades our country has been looted, pillaged, raped, and plundered by nations near and far, both friends and foe alike.”
Trump’s tariff announcements triggered an immediate drop in stock market indexes in America and widespread volatility across global markets. The three main stock markets in the US opened on 2 April 2025 with their worst one-day losses since the start of the COVID-19 pandemic in March 2020, and the downward trend continued on the following day. The S&P 500, the Nasdaq Composite, dominated by ‘Big Tech’ stocks, and the Dow Jones Industrial Average were all affected. Investor confidence was dented, and the Nasdaq Composite moved into bear market territory, in which an index closes down by at least 20% from its most recent peak. The internationally-focused FTSE-100, comprising the top hundred public companies listed on the London Stock Exchange, suffered its worst one-day drop in five years. S&P 500 companies lost a combined $2.4 trillion in stock market value overnight, in their biggest one-day loss in five years. Magnificent Seven (Alphabet, Amazon, Apple, Meta, Microsoft, Nvidia, Tesla) tech stocks tumbled, seriously depleting their market value. Global hedge funds and levered exchange-traded funds (ETFs) divested themselves of their holdings of stocks which are likely to be affected by the forthcoming tariffs. The US dollar index, which measures the value of the greenback against a basket of six global currencies, including the pound and the euro, has fallen. A weaker dollar would make imports even more expensive. Prices of gold, which is widely considered a safe store of value at times of economic uncertainty, have reached new highs. Investors are also opting for safer government bonds.
The immediate disruptive and destabilising effects of tariffs are being framed as short-term financial pain as the price to pay for long-term economic gain. Trump expects that manufacturing will be forced to return to America, even though production costs will inevitably rise and increase prices for American consumers and businesses. He also wants to stop the US being an alleged “dumping ground” for cheap imports. Trump thus informed Fox News on 9 March 2025 that “There is a period of transition because what we are doing is very big. We’re bringing wealth back to America.” Trump hopes that tariffs will eventually generate sufficient tax revenues for the Treasury, so that the US no longer has to rely on the federal income tax to boost its coffers.
Depending on your ideological and economic beliefs, Trump’s ‘America First’ tariff regime may either bring prosperity to the nation, albeit at the expense of its trading partners, or alternatively contribute to a global recession, which the US will not escape. The experiment has begun and seems unstoppable. It will, however, take several months before even an early verdict can be proclaimed, as complex supply chains and established trading patterns respond to Trump’s wide-ranging and somewhat ad hoc tariffs, and in turn influence national retaliatory actions and consumer, business, and investor confidence. The uncertainties that lie ahead are far too overwhelming to contemplate with a clear and unbiased mind.
Ashis Banerjee
PS. President Trump abruptly changed his mind, presumably in response to the prevailing stock market conditions, and posted on 9 April 2025 on Truth Social: “I have authorized a 90-day PAUSE, and a substantially lowered Reciprocal Tariff during this period, of 10 per cent, also effective immediately.” He simultaneously raised tariffs on Chinese imports to 125%, before opting for the higher figure of 145%. Although the stock markets responded favourably to begin with, and Trump claimed a victory of sorts in his single-minded efforts to reset the global economic order, it is too difficult to predict with any certainty as to what lies ahead in the coming weeks and months.