What does Trump’s ‘Liberation Day’ mean for tariffs?

Trump’s Plan for “Liberation Day”: Implications for U.S. Consumer Product Demand, Deficit Reduction, and Industrialization

It’s a push he is branding as “Liberation Day,” promising it will bring in foreign tariff revenues to be put toward U.S. tax cuts and deficit reduction, and spur a renaissance in U.S. manufacturing.

The pledge ignores the fact that the pain will be felt by consumers and the farmers who will end up paying higher prices.

In other words, a 67% tariff on Chinese products would reduce demand for Chinese products by … also 67%. Trump’s economists predict that the tariffs will reduce Americans’ purchases of Chinese products by about $294 billion and close the trade deficit. At least in theory.

Steel and aluminum, Chinese goods, and some goods from Mexico and Canada have been subject to tariffs thus far. But he has also threatened, delayed, or withdrawn tariffs on an array of other goods, often telegraphing new potential moves while providing few to no details.

The uncertainty over the policy has roiled the economy. The S&P 500 stock index just closed out its worst quarter since 2022, and consumer confidence recently hit a 12-year low.

Predicting Trump’s “Peripheral” Trade Negotiations: How Will They Affect the U.S. Economy?

“They took advantage of us,” Trump told reporters on Monday. “And we are going to be very nice by comparison to what they were. The numbers will be lower than what they’ve been charging us and, in some cases, maybe substantially lower.”

Trump’s economic policy has been unique not only in his aggressive rhetoric around tariffs but also in the vagueness and unpredictability surrounding his policy announcements.

There are some examples in this pattern. A February 13 memo laid out the start of the process, instructing Cabinet members and advisers to study how “non-reciprocal” trade relationships might be harming the U.S. economy, then submit reports that propose ways to make trade with any given country “reciprocal.”

The Secretary said the studies would be done by April 1. “We will hand the president the opportunity to start on April 2, if he wants,” Lutnick said.

That still leaves flexibility in the timing of imposing the tariffs. While it’s not clear when specific tariffs will come into effect, White House press secretary Karoline Leavitt said on Tuesday that they would be imposed “immediately.”

This is contrary to Trump’s previous public statements, where he has variously denied that tariffs would raise prices or has said that he “couldn’t care less.”

“In fact, I’ll probably be more lenient than reciprocal because if I was reciprocal, that would be — that would be very tough for people,” Trump said in an interview last week with Newsmax.

Doug Irwin said that a more conventional approach to pressuring other countries to lower tariffs was to specifically target a country or a good.

“What’s less normal is when you have a much more vague objective, a broad-brush approach to many countries, many possible sectors,” he said. Things are not evenly distributed with different countries. It’s very difficult to have a blanket approach to all of that.

Unfair trade practices are out there. So to the extent that you threaten tariffs … that would call for a very surgical approach,” Veroneau said. “These tariffs presumably will far exceed the number of U.S. exporters that are complaining to this administration or previous administrations about very specific trade barriers.”

Veroneau added that this is symptomatic of a bigger problem with how Trump talks about tariffs as a solution to a wide range of policy problems, some of which conflict with each other.

According to Trump’s calculations, the tariffs are supposed to raise prices. The trade deficit can be closed by higher prices.

For instance, take China. Last year, Americans imported about $439 billion of products from China — chiefly electronics, clothing, and machinery — while exporting only $144 billion. The formula says that a 67% tax on Chinese goods will correct the trade balance. Trump announced on Wednesday that the actualtariff would be 34%, or half of it.

The approach behind these Greek letters is blunt but understandable. The equation is trying to answer a question about what tariffs should be in order to get Americans to buy fewer foreign products. It’s said that when the United States has a trade deficit with another country, higher tariffs should be applied to that country’s products.

The new tariffs are the highest taxes on foreign products that America has seen in a long time. Listen to the Planet Money episode about the Smoot- Hawley tariffs.

That is not true. These are not reciprocal tariffs. They do not correspond to the same tariffs in other countries. The truth behind where these tariffs came from is far more interesting.