On Friday, President Donald Trump announced a dramatic new tariff policy. He did this by instituting a baseline 10% tariff on all imports entering the United States. This step is the largest increase in U.S. tariffs in almost a hundred years. It recalls the Smoot-Hawley tariff of 1930. The tariffs will go into effect this Saturday, one minute after midnight. Moreover, certain countries and trading blocs will be hit with additional tariffs on April 9th.
The announcement comes against a backdrop of escalating trade tensions and a rapidly swelling U.S. trade deficit with most countries. Look for much higher tariffs on goods imported from 60 or so countries. These countries have been labeled as being responsible for a large trade deficit with the U.S. This means that starting in 2024, China will be subject to a new 34% tariff, bringing its overall tariff to a whopping 54%. At the same time, the European Union will pay a 20% tariff.
Immediate Economic Impact
Market reactions to Trump’s tariff announcement across every sector were instant and extreme. By early evening, Dow futures were down over 900 points, or 2.19%. The S&P 500 futures contract was down 3.38%, while futures tied to the Nasdaq 100 sank by 4.28%. Publicly, business analysts railed at the prospect of this new trade policy increasing economic uncertainty.
“President Trump just finished his tariff speech at the White House and we would characterize this slate of tariffs as ‘worse than the worst case scenario’ the Street was fearing,” – Dan Ives, senior analyst at Wedbush Securities.
These tariffs will harm thousands of US companies across nearly all sectors. Grocery stores, especially, have the ability to mark up their prices, shifting those costs onto consumers. Benjamin Colvin, president and co-founder of Devil’s Foot Brewing, remarked on the potential implications of the tariffs stating, “It’s concerning, it’s going to be expensive, it’s going to require us all to make decisions.”
International Response and Future Outlook
National defense allies
Underlying motives aside, foreign nations — even as U.S. allies — have made it known that they will not allow Trump’s tariffs to stand unchallenged. China, Japan and South Korea pledged to retaliate collectively against the new tariffs. Experts are already suggesting this will only serve to stimulate a tit-for-tat cycle of retaliation that will further strain global trade relations.
For his part, Bessent echoed U.S. Treasury Secretary Scott Bessent’s recommendation to keep your guard up given today’s geopolitical risk backdrop. “Sit back, take a deep breath, don’t immediately retaliate,” he stated. He added, “Let’s see where this goes, because if you retaliate, that’s how we get escalation.”
The tariffs do allow for some exceptions for Canada and Mexico. Our current trade framework will remain in effect for as long as it takes us to fix the associated problems of fentanyl trafficking and illegal immigration. A 25% tariff will continue to apply on imported products from countries that don’t follow the USMCA. This measure is intended to ensure compliance with the trade pact.
Political Ramifications
Trump’s announcement has sent shockwaves through the political establishment as it unfolds on top of an already incendiary set of ongoing trade negotiations. Critics say measures this aggressive would be likely to alienate allies and to upend established trade and supply relationships.
In defending his approach, Trump stated, “We will charge them approximately half of what they are and have been charging us, so the tariffs will be not a full reciprocal.” He acknowledged that his administration could have opted for harsher measures but chose to proceed with caution: “I could have done that, I guess, but it would have been tough for a lot of countries and we didn’t want to do that.”
Despite these reassurances, confusion and concern are still plenty, particularly about the long-term impacts of these tariffs to both domestic and international markets. As Trump himself said, “When it comes to immigration, doing anything rash would be a big mistake.” This indicates that his administration beautifully knows the long-term consequences of such economic madness.