Trump’s Tariffs Bring a New Era in Global Trade | Finally Clarity, But Pain Ahead

Note: Today’s dispatch focuses on the tariff details announced April 2 by President Donald Trump.

— President Trump’s sweeping tariff announcement: Key details and implications. On Wednesday, April 2, President Donald Trump unveiled an extensive new tariff strategy during a Rose Garden ceremony at the White House. Dubbed “Liberation Day,” the announcement marks a significant shift in U.S. trade policy, intensifying global trade tensions and sparking concerns about inflation and economic disruption. They are the realization of a core pillar of Trump’s 2024 campaign. The measures were even tougher than most had predicted. Link to White House fact sheet.

— President Trump announced two tiers of tariffs:
· Baseline tariff: A flat 10% tariff on all goods imported into the United States (except Canada and Mexico), effective Saturday, April 5 at 12:01 a.m. ET. The concept of the baseline tariff was to have a level imposed that will keep countries from trying to circumvent the tariffs by trans-shipping goods through other countries to avoid the higher tariffs.
· Reciprocal tariffs: Higher tariffs targeting nations with significant trade surpluses or restrictive trade practices against U.S. goods. These tariffs will be calculated at approximately half the rate imposed by those countries on American exports and will take effect on Wednesday, April 9, at 12:01 a.m. ET.
· Additionally, a separate 25% tariff on imported automobiles is set to take effect at 12:01 a.m. ET on Thursday, April 3, though those tariffs were not part of the executive order signed by Trump at the White House April 2.

— Of note:
· A senior White House official said the products covered by Section 232 tariffs, including autos, aluminum, copper, and lumber, will not be included in the tariffs announced Wednesday.
· Mexico and Canada would not be subject to any new tariffs beyond the levies the president had previously announced. Tariffs on Canada and Mexico over fentanyl and migration will continue while those conditions persist. As for goods covered by the U.S.-Mexico-Canada Agreement (USMCA), USMCA-compliant goods will continue to see exemptions relative to those products, and they will continue to see exemptions from the fentanyl-related tariffs. According to a White House fact sheet (link), “USMCA compliant goods will continue to see a 0% tariff, non-USMCA compliant goods will see a 25% tariff, and non-USMCA compliant energy and potash will see a 10% tariff. In the event the existing fentanyl/migration IEEPA orders are terminated, USMCA compliant goods would continue to receive preferential treatment, while non-USMCA compliant goods would be subject to a 12% reciprocal tariff.”
· Other sectoral tariffs are in the works for semiconductors, pharmaceuticals and potentially critical minerals as those products will not be covered under the tariff regime announced Wednesday.

— The tariff formula. In a statement published Wednesday night (link) to explain its methodology for tariffs, the United States Trade Representative (USTR) detailed 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. And then that number was divided by two, producing the “discounted” rate. China, for instance, 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 Trump’s formula, that yielded a tariff rate of 34%. The same calculations roughly produced the rates for other economies like Japan, South Korea and the European Union.

As previously noted, countries where the U.S. runs a trade surplus were also hit, facing a flat 10% rate regardless, as did nations where trade was roughly even — this will keep countries from trying to circumvent the tariffs by trans-shipping goods through other countries to avoid the higher tariffs.

The USTR statement said that while it was technically possible to calculate rates for actual barriers, this methodology would achieve Trump’s goal of driving down trade deficits. “While individually computing the trade deficit effects of tens of thousands of tariff, regulatory, tax and other policies in each country is complex, if not impossible, their combined effects can be proxied by computing the tariff level consistent with driving bilateral trade deficits to zero,” said the statement, which was unsigned.

— The reciprocal tariffs are additive, meaning they will be imposed on top of existing tariffs already in place. Countries facing elevated rates include:
· China: 34%, in addition to the 20% levies already put on China, bringing total tariffs to 54%. Citi researchers said the effective rate could be “prohibitive” for U.S./China trade.
o Trump also signed an order ending the de minimis exemption on May 2 on imports from China, allowing shipments valued at less than $800 to enter the U.S. duty free. The secretary of Commerce will submit a report within 90 days assessing the impact and considering whether to extend these rules to packages from Macau. Shares in Temu-owner PDD, Alibaba and JD.com all plunged after the announcement.
o Other countries: While the White House indicated the de minimis exemption for China would be removed, the Executive Order indicated that it will still remain available to other countries until the secretary of Commerce notifies that “adequate systems are in place” to collect tariffs on items where the de minimis exemption would otherwise apply.
· European Union: 20%
· Japan: 24%
· India: 26%
· Vietnam: 46%
· Lesotho: 50%.
· Around 60 countries are on what the official said was a “worst offenders” list.

(USTR)

(USTR, Axious Visuals )

— Tariff disparities were highlighted as Trump singled out Canada as a country with hefty tariffs on U.S. ag products that needed to be eliminated.

— Agriculture also figured into other areas, with a fact sheet from the White House noting the following:

· Brazil (18%) and Indonesia (30%) impose a higher tariff on ethanol than does the United States (2.5%).
· For rice in the husk, the U.S. imposes a tariff of 2.7%, while India (80%), Malaysia (40%), and Turkey (31%) impose higher rates.
· Apples enter the United States duty-free, but not so in Turkey (60.3%) and India (50%).

— Rationale behind the tariffs. Trump framed the move as a response to decades of unfair trade practices that he claimed have “pillaged” U.S. wealth and undermined national security. He invoked the International Emergency Economic Powers Act (IEEPA) to declare a national emergency tied to persistent trade deficits and foreign policies such as currency manipulation and value-added taxes (VAT).

— Executive order lays out more details. The Executive Order signed by Trump (link) outlines the history of how trade has unfolded between the U.S. and the rest of the world since the 1930s. The order notes the World Trade Organization (WTO) presence has resulted in countries agreeing to bind their tariffs at most-favored-nation (MFN) levels and provide other WTO members with the best tariff rates. The order noted that “the United States has among the lowest simple average MFN tariff rates in the world at 3.3%, while many of our key trading partners like Brazil (11.2%), China (7.5%), the EU (5%), India (17%), and Vietnam (9.4%) have simple average MFN tariff rates that are significantly higher.”

A senior White House official indicated that the tariffs will likely be in place for a while, with the Executive Order stating, “These additional ad valorem duties shall apply until such time as I determine that the underlying conditions described above are satisfied, resolved, or mitigated.”

The Order also states that additional actions could be taken if the tariffs announced are not effective “in resolving the emergency conditions” including an increase in the overall trade deficit for the U.S.

Also, if countries take actions to remedy their trade situation with the U.S., the tariffs could be modified or removed.

— Trump emphasized that these measures aim to:
· Restore equity in international trade.
· Protect U.S. manufacturing and critical supply chains.
· Generate revenue for the federal government.
· Strengthen domestic industries like steel, aluminum, and automobiles.

— Economic impact. The tariffs are expected to have far-reaching consequences for both the U.S. economy and global trade:
· Exiger, a data analytics firm, calculated that the burden could fall heaviest on Chinese exports, which would face $149 billion in additional tariffs, while Vietnamese goods would face $63 billion, Taiwanese products $37 billion and Japanese goods $36 billion in tariffs. The firm called the announcement a “monumental policy shift that will reshape sourcing, pricing and geopolitical strategy.”
· Inflation: Higher import taxes will likely lead to increased consumer prices for essential goods such as cars, electronics, and clothing. Analysts predict inflationary pressures could disproportionately affect lower-income households.
· Automotive sector: A separate 25% tariff on imported automobiles, effective April 3, could add $3,000–$6,000 to vehicle costs and reduce production output by up to 30%
· Trade wars: Several countries have already signaled retaliatory measures. For instance, Canada imposed a 25% tariff on $30 billion worth of U.S. goods in response to earlier levies.
· Global growth slowdown: Economists warn that these tariffs could reduce U.S. GDP growth by up to 0.6% in 2025 and lead to long-term economic losses of $80–110 billion annually.

— Market impacts: Stocks and the dollar dropped, bonds and gold jumped — an index of the dollar fell to a five-month low. Haven assets surged and weaker markets floundered. U.S. stock futures tumbled 3-4%. Stocks in Asia and Europe fell sharply. Although President Trump held off on imposing tariffs on oil and natural gas, prices for these commodities still fell sharply today. Brent crude, the international oil benchmark, dropped by 3% on Thursday. European natural gas futures also fell, by about 2.5%. Demand for oil is closely related to economic growth. And Trump has focused much of his tariff fire on Asia, which has been the main growth market for oil in recent years.

Clarity, finally, but pain ahead. The measures will be a negative for the global economy and the market reaction is evidence that the tariffs were harsher than many had expected. But at least they are now known, ending months of speculation and uncertainty that has hampered broader risk sentiment.

Analysts at Citigroup said that the tariffs were “much worse than expected.”

The tariffs would translate into a 2.3 percentage point increase to overall inflation this year, according to new estimates from the Yale Budget Lab, or about a $3,800 impact for the average household.

— Political reactions. The announcement has drawn mixed reactions:
· Supporters argue that the tariffs will bolster American manufacturing and reduce dependence on foreign imports.
· Critics, including Democratic lawmakers, view the move as unilateral overreach that risks destabilizing alliances and exacerbating economic inequality.

— International response. Countries targeted by Trump’s reciprocal tariffs are preparing countermeasures:
· The European Union has hinted at retaliatory tariffs while leaving room for negotiations. France is pushing for the EU to hit U.S. tech companies, a move that would broaden the trade war to the vast services sector. The new tariffs represent “a major blow to the world economy,” Ursula von der Leyen, the president of the European Commission, said in a press statement early on Thursday morning. “The global economy will massively suffer. Uncertainty will spiral, and trigger the rise of further protectionism.” The EU sends nearly a fifth of American imports, and European consumers are a huge market for American services.
· China criticized the measures as protectionist and threatened its own set of levies. China vowed to “safeguard its own rights and interests.” Its state media described the tariffs as “self-defeating bullying.”
· Japan called the new levies “extremely regrettable.”
· Smaller nations like Vietnam and Lesotho are expected to face significant economic strain due to steep tariff rates.
· The UK and Australia expressed disappointment in the tariffs but have chosen not to retaliate at this point. Prime Minister Keir Starmer of Britain said negotiations toward a trade deal with the U.S. would continue and did not suggest any immediate retaliation. Prime Minister Anthony Albanese of Australia said the United States imposing 10% tariffs on the country had “no basis in logic.” But Australia would not race to retaliate, he said, saying the country would not “join a race to the bottom that leads to higher prices and slower growth.”
· In Mexico and Canada, there was a sense of relief at avoiding new tariffs. “This is good news for the country,” said Luis de la Calle, a top Mexican trade economist. “It allows us to safeguard our access to U.S. markets.” As for Canada, Prime Minister Mark Carney said Trump “has preserved a number of important elements of our relationship, but the fentanyl tariffs still remain in place. We’re going to fight these tariffs with countermeasures.”
· The U.S. will respond to any retaliation to make sure the emergency action is not undermined.

— How ING Economics sizes up the tariffs: “Long-term benefits may come, but near-term pain looks certain. Today’s actions make the argument for reshoring at least some activity to the U.S. much stronger. However, U.S. manufacturing wages are amongst the highest in the world — the National Association of Manufacturers states that in 2023, manufacturing employees earned an average of $102,629, including pay and benefits. For China, it is around 25%, and for Korea, it is around 40% of that figure. Even in Germany, it is less than 75% of the U.S. figure. This suggests that it would only make sense to reshore activity related to highly automated, high skill, high value-added production or for products where there is a strong market that consumers are willing to pay a premium for a ‘Made in America’ label.

“Given the costs of moving production to the U.S., many other manufacturers may decide that it is cheaper to keep production facilities where they are and just absorb the tariff within operating costs and perhaps hope that the Administration’s attitude softens.

“It will also raise substantial tax revenue thanks to a lack of U.S.-made products that producers and consumers can substitute for. This gives President Trump the fiscal headroom to deliver on his promises for extended and expanded tax cuts later this year. As manufacturers reshore, tariff revenue will obviously decline, but the hope is that this will be more than offset by higher payroll and corporation tax receipts.

“Nonetheless, the transition period will be painful with squeezed consumer spending power and corporate profits risking a weaker economy for 2025.”

— WSJ opinion: Trump’s trade shift and what it means for the U.S. and the world. In a major move that signals a return to old-school protectionism, President Donald Trump on Wednesday unveiled sweeping new tariffs — dubbed “Liberation Day” tariffs. While branded as reciprocal, the Wall Street Journal editorial board (link) calls them “reciprocal in name only.” The WSJ warns that this aggressive approach may “remake the U.S. economy and the world trading system,” but not necessarily for the better. Here are key takeaways from their commentary:

Economic Uncertainty and Consumer Pain
The editorial underscores the unpredictability of global reactions, noting that “if the response is widespread retaliation, the result could be shrinking world trade and slower growth, recession, or worse.” American consumers and businesses are likely to face rising costs—especially in industries like autos, where tariffs could inflate prices by thousands.

“Mr. Trump is making a deliberate decision to transfer wealth from consumers to businesses and workers protected from competition behind high tariff walls.”

U.S. Exports in the Crosshairs
A central critique is that Trump’s approach reverses decades of bipartisan trade expansion efforts. Retaliatory tariffs and new trade agreements excluding the U.S. may sideline American exporters.

“Think of Brazil’s soybean bonanza after Mr. Trump’s China tariffs in his first term.”

Lobbyists’ Paradise, Leadership’s Decline
The WSJ predicts a surge in lobbying as industries seek exemptions. Despite Trump’s tough talk, “watch that promise vanish” under political pressure. More broadly, the U.S. risks ceding its role as global economic leader:

“The U.S. share of global GDP has been stable at about 25% for decades… That era is now ending.”

China’s Strategic Advantage
Ironically, Trump’s anti-China policy may hand Beijing new influence, as allies seek stable trade partners. China’s growing trade ties could reduce cooperation on tech controls and national security.

“Trump’s new tariff onslaught is giving China another opening to use its large market to court American allies.”

Bottom Line
The WSJ sees this moment as more than a shift in trade policy — it’s a pivot away from the post-WWII economic order. Trump may be promising a “golden age,” but the Journal cautions it could look more like a costly detour into the past.

— USDA Secretary Brooke Rollins was the first Cabinet member Trump praised during his Rose Garden tariff ceremony: “You did a great job on eggs, by the way… The egg prices, they were going through the sky.”