After weeks of anxious waiting in the financial markets and among the capitals of America’s trading partners, Donald Trump’s “Liberation Day” tariffs have finally been implemented, and they are, even by his standards, astonishingly high and extensive. “For decades, our nation has been looted, pillaged, raped, and plundered by countries near and far,” Trump declared on Wednesday to an audience at the White House that included members of the United Auto Workers and elected Republicans alike. After presenting a brief economic history of the nation, where he strangely asserted that the Great Depression could have been avoided with high tariffs, Trump proclaimed that “reciprocal tariffs” would take effect on April 9th, imposing rates of thirty-four percent on goods imported from China, twenty-four percent on Japan, and twenty percent on the European Union. The highest rates were designated for export-driven developing nations in Asia: forty-six percent on Vietnam, forty-eight percent on Laos, and forty-nine percent on Cambodia.
The lead-up to this announcement was tumultuous. Trump has long been fixated on tariffs, but recently his messages have varied, with him previously suggesting the new tariffs would be “somewhat conservative.” A few weeks ago, reports emerged that he had opted for a more limited strategy, focusing on countries with large trade surpluses with the United States, like China and Japan. However, last weekend, it became clear that the broader tariffs he had discussed during last year’s election were back on the agenda. “No one knows what the hell is going on,” a source close to the White House informed Politico. “What are they going to tariff? Who are they going to tariff and at what rates? The most basic questions remain unanswered.”
Ultimately, Trump selected an “all of the above” approach. The new tariffs entail a ten percent levy on almost all imported goods, along with higher rates for various specific countries. Trump claimed these rates were about half of what these nations charge on U.S. goods, yet the methodology behind these figures was not immediately clear. While many countries indeed have tariffs higher than those of the United States, the discrepancies are not as substantial as Trump suggests, particularly concerning some of America’s allies. “On a trade-weighted basis, the average U.S. tariff is 2.2 percent,” noted the Washington Post’s Jeff Stein and David J. Lynch. “Japan’s is 1.9 percent and the European Union’s is 2.7 percent, slightly above the U.S. average, according to the World Trade Organization.”
The tariffs announced on Wednesday are in addition to those already enforced on steel, aluminum, and foreign-made cars and parts. Together, Trump’s tariffs mark a significant expansion from the more targeted duties enforced during his first term—some of which the Biden Administration has retained—effectively putting an end to the open trading environment that prevailed prior to 2016. According to Olu Sonola, an economist at Fitch Ratings, the average U.S. tariff rate on all imports could rise to around twenty-two percent, a level last witnessed around 1910. “This represents a game changer, not only for the U.S. economy but for the global economy,” Sonola stated. “Many countries might face recession.”
Discussions regarding Trump’s trade policies have often pointed to William McKinley, the twenty-fifth President, as a source of inspiration. While some commentators have proposed that Hitler’s Germany, which followed a policy of economic self-sufficiency or autarky, may be a more accurate model for Trump. Regardless of where his affinity for tariffs and protectionism originated, the philosophical roots of his approach can be traced back to English mercantilist thinkers of the sixteenth and seventeenth centuries, who also perceived trade as a zero-sum game. “We must always take heed that we buy no more from strangers than we sell to them; otherwise, we could impoverish ourselves and enrich them,” an anonymous English author wrote in the 1550s. The aristocrat William Cecil, a senior advisor to Queen Elizabeth I, articulated a sentiment even more in line with Trump’s views: “Nothing robs the realm of England, but when more merchandise is brought into the realm than is sent out.”
During a period when trade was predominantly financed with gold and silver, mercantilists viewed it as a means of accumulating wealth or “treasure.” Trump, while thinking in terms of dollars rather than gold, does not stray far from this concept. In his remarks on Wednesday, he reiterated his unfounded assertion that Canada was subsidizing the United States by two hundred billion dollars annually. (Trade payments are not subsidies; last year, the U.S. trade deficit with Canada for goods and services was well under one hundred billion dollars.)
The entry of China into the World Trade Organization in 2001 and the influx of inexpensive Chinese products into the U.S. showcased how open trade with countries that have significantly lower labor costs can harm specific communities and industries. Historically, American economists downplayed these adverse effects, leaning on Adam Smith’s theory that trade is mutually advantageous as it allows each party to capitalize on its inherent strengths. (Smith’s famous example involved Britain exporting cloth to Portugal while importing Portuguese wine.) Currently, the economic discourse in Washington has largely shifted to evaluating which deviations from free trade are justifiable. For instance, the Biden Administration recently quadrupled the tariffs on Chinese electric vehicles while providing substantial grants to auto manufacturers investing in U.S. EV production.
In contrast, Trump’s tariffs are far more sweeping and will impact many of America’s traditional allies. This breadth has prompted speculation regarding his ultimate intentions. In a paper published shortly after last year’s election, Stephen Miran, a Harvard-trained economist who was then working at a hedge fund and is now chair of the Council of Economic Advisers, linked Trump’s tariff strategies to his America First foreign policy, suggesting these tariffs could be instrumental in diminishing the U.S. trade deficit while simultaneously compelling America’s allies to shoulder the costs of its defense obligations and national debt.
Miran elaborated that Trump’s tariffs would primarily serve as leverage to press other countries into accepting a dollar devaluation, enhancing the competitiveness of U.S. exports, and facilitating a restructuring of the national debt. In this scenario, foreign creditors—many of whom hold U.S. Treasuries—would swap their holdings for a new financial instrument: a hundred-year bond with a very low-interest rate, thereby lowering the U.S. government’s cost to raise capital. Why would foreign investors accept such a disadvantageous agreement? Miran didn’t provide a complete explanation, but it can be inferred that they would lack alternative options if they wished to maintain access to the U.S. market and military support. Miran referred to this potential reconstruction of the global trading landscape as the “Mar-a-Lago Accord”—a nod to the Plaza Accord of 1985, in which the U.S., Japan, Germany, France, and the U.K. voluntarily agreed to a dollar devaluation. As Martin Wolf from the Financial Times highlighted, the Trump iteration, if realized, might more accurately resemble a protection racket.
Trump did not address these considerations on Wednesday. Instead, he asserted that the tariffs would bring manufacturers back, create jobs, and generate substantial new revenue. However, utilizing tariffs as steady sources of income conflicts with their intended role as bargaining tools in future trade negotiations. Another concern with the proposed Mar-a-Lago Accord or a comparable framework is that any serious suggestion to refinance the twenty-five trillion dollars of U.S. debt held by private investors could trigger a massive sell-off of Treasuries, culminating in a significant financial crisis.
The immediate political hurdle for Trump is that, regardless of whether his policies may enhance U.S. manufacturing in the long term, they are likely to inflict short-term harm on two key segments of the G.O.P. coalition: working-class MAGA voters and business-friendly Republicans.
While some of Trump’s supporters may commend him for attempting to safeguard the industries and communities in which they work, they will now face increased costs for a range of products, from clothes and electronics imported from Asia to French wines and Irish whiskey, including vehicles produced both domestically and abroad. The recently announced twenty-five percent tariffs on foreign auto vehicles and parts are set to commence on Thursday. Daniel Roeska, an analyst at Bernstein, estimates these tariffs could inflate costs for automakers reliant on foreign-sourced parts by as much as sixty-seven hundred dollars per vehicle sold.
