Happy Liberation Day!

Despite sounding like some dystopian-esque celebration, “Liberation Day” is actually the day designated by President Trump to announce the new tariffs he intends to impose on foreign nations in order to promote domestic manufacturing and limit reliance on foreign imports.

So, what exactly are these tariffs going to look like and what should we expect?

Well, first and foremost, these tariffs are said to be “reciprocal” tariffs. Essentially, what this means is the tariffs that the U.S. will levy on a certain country will match the tariffs they levy on us. As is with any economic policy, these tariffs have the potential to be both beneficial to consumers and harmful.

On the “glass half full” end, raising tariffs to match the pre-existing tariffs levied on us could incentivize our trade partners to lower their tariffs in the interest of opening up trade on both ends and lowering prices for their consumers at home, something that’s already happened with India lowering tariffs on motorcycles and luxury cars (among other goods) and promising to increase imports of U.S. energy

On the “glass half empty” end, tariffs are usually just passed on to consumers, making everyday goods more and more expensive for the common man, while countries try to battle it out on the global stage for control over trade.

Regardless of which outcome the tariffs result in, things are going to get messy with these “reciprocal tariffs”. Let’s start at the domestic level –

From a practical, policy-centered perspective, it’s hard to predict how these tariffs will actually pan out. It’s one thing to say that the U.S. will match tariffs, it’s one thing to actually do it, due to the sheer volume of trade. 

Actually enforcing these tariffs could potentially look like going through every single tariff on every single item imported from every single foreign country and then systematically going through, item by item, country by country, and raising those tariffs to match. Alternatively, creating these “reciprocal” tariffs could also just look like examining the average tariff rate from a certain country and then raising the U.S.’s to match that average rate. While both tactics certainly have their own benefits and drawbacks, the concern lies not in the choice of tactic – it lies in the lack of clarity surrounding the implementation of these tariffs.

Raising tariffs is also a departure from decades of foreign policy surrounding free trade and tariffs. Since World War II, America has prioritized free trade and minimizing trade barriers (like tariffs) to foster both international cooperation and peace and promote prosperity for American exports. And as a result of this policy outlook, U.S. tariffs have largely been kept to low levels over the years.

The same can’t be said of our foreign trade partners: according to AP News, Brazil taxes ethanol imports at 18%, while the U.S. only levies a 2.5% tax, and India levies a 100% tax on foreign motorcycles, while the U.S. charges only 2.4%. It’s important to note, however, that these high tariffs aren’t uniquely targeting American industry – under the “most favored nation” policy, it would be impossible to charge one nation a higher tariff that other nations without sparking instant international conflict.

So, this then begs the question: would implementing these tariffs be effective and actually help mitigate the economic issues and inflation plaguing the U.S.?

As I mentioned earlier, it’s hard to predict the effects of the tariffs without knowing what they’re going to look like. In addition to the import-by-import tariff and the average tariff options, “reciprocal” tariffs could also take the form of a broad 20% tariff across the board, based off comments by White House trade adviser Peter Navarro.

Some also believe that Trump’s tariffs could first focus on the “Dirty 15”, or the 15% of U.S. trade partners with which the U.S. has the greatest trade deficits, although Trump expressed on Sunday that he would not be amenable to such a plan.

Yet another approach would be tariffs on the entire breadth of imported goods, about $3.3 trillion USD by last year’s data on trade.

It’s in part due to this confusion over what the tariffs will actually look like that it’s impossible to predict how these tariffs will impact the U.S. economy.

One projection of the impact of these tariffs, conducted by Moody’s Analytics, suggest that an escalated trade war stemming from higher tariffs could provoke an extreme recession and cause “a wipeout for the economy”, according to Moody’s chief economist Mark Zandi. From a numerical standpoint, the Moody’s projection suggests a 7% increase in the unemployment rate, 5.5 million jobs gone, and a 1.7% drop in US GDP.

Concerns over a recession seem to be widespread as Goldman Sachs increased its tariff assumptions by 15%, up to a 35% chance of a U.S. recession in the next year. President of Yardeni Research, Ed Yardeni also raised his predictions of a stagflation by 10%, bringing it up to a 45% chance of stagflation.

However, none of these outcomes are guaranteed. The only thing that we know for certain is the tariffs that have already been put into place.

As of Monday night, Trump had instituted:

• 10% tariff on all Chinese imports as of Feb. 4, later expanded to a 20% tariff from March 4 onward
  • Counter tariffs from China on U.S goods include:
    • 15% on liquified natural gas and coal products (Feb 10)
    • 10% on crude oil (Feb 10)
    • 15% on key farm exports (Mar 10)
• 25% tariff on aluminium and steel across the board
• Delay on 25% tariff on Mexico and Canada for imports related to the auto industry and imports that comply with the 2020 US-Mexico-Canada Agreement (set to go into effect in early April)
  • 10% tariff on energy products from Canada and potash
    • Canada has imposed counter tariffs in response to this tariff, as well as the tariffs on aluminum and steel imports
  • Mexico is yet to impose counter measures

So, when will we find out about what the tariffs will look like and when they’ll go into effect?

The new tariffs are set to be announced on “Liberation Day” at 4 p.m. in Eastern Time at a ceremony in the White House Rose Garden and will go into effect immediately.

It’s impossible to look into the future and predict the impacts of these tariffs… but it is possible to look into the past and study the effects tariffs have had on the economy. 

So, if we really want to understand what these “retaliatory” tariffs could have in store for us as everyday people, then our best resource is history. Research tariffs of the same level that have been previously imposed. Examine their impacts on the stock market, unemployment, and the U.S. and global GDP. Look into how previous administrations over the course of the last couple centuries have attempted to combat economic instability and the success of those attempts.

After all, history repeats itself and the chances of finding the answers to our future economic problems in our past are only as high as our knowledge of that past.