Liberation Day Tariffs: The Trade War’s New Battlefront
April 2nd, brought the Liberation Day tariff announcement from the President. Below is a deep dive of the official documents from the White House, and what to expect moving forward.
The official fact sheet can be found here, the White House proclamation is here, Annex I(list of countries where there is a reciprocal tariff), and Annex II (list of countries not immediately subject to tariffs). As for effective dates:
April 5th at 12:01 a.m. ET, the 10% flat tariff will be imposed on “all imports” except the following:
“All products” that are encompassed by 50 U.S.C. 1702(b); subject to Section 232 tariffs on steel and aluminum; subject to Section 232 tariffs on autos and auto parts; listed in Annex II which largely includes chips, critical materials, lumber, and pharmaceuticals; and most importantly “all articles that may become subject to duties pursuant to future actions under section 232.”
“All countries” except those that are subject to Column 2 of the HTS code (Cuba, North Korea, Russia, and Belarus). Canada and Mexico are excluded since the previous IEEPA tariffs related to border security and fentanyl remain in effect. Most notably, there is also a carveout for USMCA compliant products including potash (which is only made in Canada), and energy/energy resources. A note about the USMCA exemption – IFPA thanked the administration for excluding crops covered under the USMCA.
On April 9th at 12:01 a.m. ET, the 10% flat tariff will become a “reciprocal tariff” for approximately 60 different countries. Keep reading for further explanation on how the President’s so-called “discounted rate” is being calculated. Similar to the first round, there are a few exceptions:
Imports loaded onto a vessel at the port of loading on the final mode of transit before April 9th at midnight.
The full list of individualized tariff rates is in Annex I, and the chart the President displayed in the Rose Garden is here.
One major note to keep watching: there is conflicting information about what the actual tariff rate from China will be. According to Barron’s, the final answer is: “The U.S. will be charging some Chinese goods as much as 79% once the new tariff package goes into effect.”
In a statement released last night, Ambassador Greer attempted to explain the Administration’s formula for calculating the tariffs.
The tariffs are not simple reciprocal tariffs, as previously reported. Instead, they have been calculated primarily based on existing trade balances. The statement details a formula that divides a country’s trade surplus with the U.S. by its total exports, based on data from the U.S. Census Bureau for 2024. That number is then divided by two, producing the “discounted” rate.
For example, China had a trade surplus of $295 billion with the U.S. last year on total exports of $438 billion — a ratio of 68%. Divided by two according to the formula, that yields a tariff rate of 34%. The same calculations roughly produced the rates for other economies like Japan, South Korea, and the European Union.
For any math enthusiasts, the formula is:
Δτi=ϵ⋅φ⋅mixi−mi
This calculation applies not only to countries that run a trade deficit with the U.S. but also to countries where the U.S. runs a trade surplus, which were still hit with the 10% rate regardless. The tariff formula, originally developed by the Council of Economic Advisers and released by the Office of the United States Trade Representative, is economically flawed. A country's trade deficit is influenced not only by tariffs and non-tariff trade barriers but also by factors such as international capital flows, supply chains, comparative advantage, and geography.
Even if the Trump Administration’s tariff formula is considered valid, it contains a critical error that exaggerates the tariffs allegedly imposed by foreign countries by a factor of four. Consequently, the “reciprocal” tariffs established by President Trump are significantly overestimated.
Reactions
Global financial markets experienced a sweeping selloff following the President’s announcement, with U.S. equity futures slumping as much as 4%. According to reporting by Politico, stock markets saw their worst decline in two years. Stocks lost at least $3.1 trillion in value, the largest one-day wipeout since the early days of the Covid-19 pandemic, per the Wall Street Journal. The value of the dollar went down against the currency of every single G-10 nation, according to the New York Times. Analysts for JPMorgan now say there is a 60% likelihood of a recession in 2025, a 20-point jump since before Wednesday. As of Saturday morning, $6.6 trillion in value has disapeared from the stock market.
Regarding reactions from other countries, French President Emmanuel Macron called for companies to stop investing in the U.S. for the time being. Canadian Prime Minister Mark Carney promised a “carefully calibrated and targeted” approach to countermeasures on autos. A major surprise came from Israel, which yesterday removed all tariffs on American goods. Israeli officials were shocked by the 17% tariff they were hit with, as were officials in Vietnam.
On Capitol Hill last night, Senators voted 51-48 to reject the national emergency the President declared earlier this year to justify his plan to impose 25 percent tariffs on Canadian imports. Republican Senators Susan Collins, Mitch McConnell, Lisa Murkowski, and Rand Paul joined all Democrats in backing a resolution from Virginia Democratic Senator Tim Kaine to end that national emergency. Paul, of Kentucky, co-sponsored the measure.
Following this success, Senator Kaine stated he plans to do the same for the new universal 10% tariffs. Senate Democrats have also announced plans to force tariff votes during a vote-a-rama, likely later this month.
Up Next
This week, U.S. Trade Representative Jameson Greer takes the hot seat before the Senate Finance Committee and House Ways and Means to defend the tariffs.
Consumers will begin to feel the initial sticker shock on several items due to the tariffs, such as groceries. For example, fresh berries will probably see fast price hikes because they are not domestically produced, they are a perishable product, and grocery stores have very low margins. While something like autos tariffs could take months as inventories dwindle and consumers won't see a straight price hike.