President Donald Trump is expected to apply sweeping tariffs on US imports on April 2, which he has called “liberation day”. But if US trade partners decide to hit back with tit-for-tat countermeasures, a global trade war will lift inflation and slow growth, warn experts.
No one is quite sure what will happen next. What number will Trump choose for his new round of tariffs? Ten percent? Twenty percent? Or the 25 percent rate he has levied on steel, aluminium and car imports?
Question marks also remain over whether Trump will apply a universal tariff, or if he’ll levy individual hikes for countries that could be subject to negotiation – the so-called “reciprocal tariff” approach.
Trump’s back-and-forth trade announcements since February have unnerved markets, with investors struggling to gauge if his tariffs are here to stay, or are a bargaining tactic to extract revenue and concessions from economic partners.
But amid that uncertainty, Trump’s broad message has remained constant: He has long accused other countries of exploiting the US on trade, casting his protectionist agenda as necessary to revive domestic manufacturing and re-shore US jobs. He also wants to use tariffs to finance future tax cuts.
What will be announced on April 2?
Donald Trump’s April 2 tariff announcement is the latest in a flurry of trade salvoes launched by the US president since his return to the White House in January.
While details about Trump’s “liberation day” trade plans remain unclear, his administration has pledged to hit countries with duties that are equal to the tariffs and non-tariff trade barriers, like subsidies, that they impose on US exports.
Trump has said his soon-to-be-announced tariffs will apply to “all countries”, pouring cold water over hopes that only economies with the biggest trade imbalances with the US would be targeted.
But if tariffs are subject to negotiation, and can be lowered over time, that will leave wiggle room for different country trade levies.
What has Trump actually said?
Speaking at the White House on Monday, Trump said his tariffs will be “nicer” than the policies of US trading partners.
“We are going to be very nice by comparison to what they were. The numbers will be lower than what they have been charging us, and in some cases, maybe substantially lower,” Trump told reporters.
Asked for details, he said, “You’re going to see in two days.”
He also repeated his regular talking point that the US has been taken advantage of by its trading partners and said the measures would bring “tremendous wealth back to our country”.
Though Trump said on Sunday that tariffs would apply to “all countries”, he also recently stated he was “open” to making deals with countries to avoid tariffs following the April 2 announcement.
Which of Trump’s tariffs are set to take effect?
In addition to tomorrow’s sweeping tariffs, other measures – including a 25 percent tariff on Canada and Mexico and a 25 percent duty on all auto imports – are set to go into effect on April 2.
Other charges have already been in place for months. On February 3, the Trump administration imposed an extra 10 percent tariff on all goods from China, on top of the various tariffs levied during the Biden and first Trump administrations. Then, on March 5, Trump doubled the tariff rate on Chinese imports to 20 percent.
Elsewhere, Trump introduced a 25 percent levy on all steel and aluminium imports on March 11.
How are markets reacting to the announcement?
Trump’s back-and-forth announcements on tariffs have sent jitters through financial markets, with investors struggling to determine if he intends to make his tariffs permanent or views them as a bargaining chip in future trade negotiations.
On Sunday, market nerves intensified after Trump said his tariffs would include “all countries”. Asian stocks fell sharply on Monday in anticipation of further disruption to global trade.
In Toyko, Japan’s Nikkei index lost 4 percent and South Korea’s Kospi fell 3 percent. European markets experienced selloffs too – the UK’s FTSE 100 fell 0.9 percent, Germany’s DAX was down 1.3 percent and France’s CAC lost 1.6 percent.
Gold, a traditional safe-haven asset during periods of market volatility, rose above $3,100 for the first time, trading at a record high of $3,106.79 per ounce.
Dario Perkins, managing director at TS Lombard, a financial research firm, told Al Jazeera that it would be “weird if markets responded in a fierce way to Trump’s ‘liberation day’ announcement. He’s been talking about it for three months now.”
Still, he pointed out that “most investors buy into the idea that hyper-globalisation has been good for corporate profits and efficiency, so if you’re looking at reversing that, it would be a negative for international supply chains and stock markets.”
In Perkins’ view, there “won’t be a significant negative reaction in financial markets until tariffs begin to do real damage to the US economy, say in the form of higher unemployment. That would be impossible to ignore.”
How are countries preparing?
US trade partners have already started responding to Trump’s tariffs, heightening a spiralling trade war.
Canadian Prime Minister Mark Carney described Trump’s moves as a “direct attack” on Canadian workers.
“We will fight the US tariffs with retaliatory trade actions of our own that will have maximum impact in the United States and minimum impacts here in Canada,” Carney said.
Following Trump’s price hike on steel and aluminium on March 11, Canada – the US’s biggest foreign supplier of the industrial metals – announced 25 percent retaliatory tariffs worth 29.8 billion Canadian dollars (US$20.7bn).
Similarly, the European Commission, the executive arm of the EU, said it would impose counter tariffs on up to 26 billion euros ($28bn) of US goods after the March 11 announcement.
For her part, European Commission President Ursula von der Leyen said the tariffs would be “bad for businesses” and “worse for consumers”.
“The EU will continue to seek negotiated solutions, while safeguarding its economic interests,” von der Leyen said in a post on X on March 26.
Japanese Prime Minister Shigeru Ishiba said his government would consider “appropriate measures” in response to the tariffs.
Henry Gao, an expert in Chinese trade at Singapore Management University, told Al Jazeera that “while some countries, like China, might respond with tit-for-tat measures, most will likely seek bilateral agreements with the US.”
As such, Gao anticipated “the [global economic] situation should stabilise within a month or so… However, if it drags on beyond that, it could severely disrupt the global economy, potentially leading to a global recession.”
Will tariffs affect the US economy?
While Trump has pitted his trade plans as a boon for the US, his policies have prompted warnings from economists and businesspeople over US consumer prices. About half of all US consumer goods come from abroad.
On cars, for instance, president and CEO of Autos Drive America, Jennifer Safavian said “the tariffs imposed today will make it more expensive to produce and sell cars in the United States, ultimately leading to higher prices.”
Economists fear that adding tariffs on imported goods will raise inflation as importers pass on costs to consumers. Data released last Friday showed that consumer sentiment across the US had fallen sharply in March, to its lowest level since 2021.
Goldman Sachs recently raised its estimate for the probability of a US recession during the next 12 months to 35 percent, up from 20 percent previously, and warned this would probably lead to further losses on Wall Street.
For Perkins at TS Lombard, “the danger is tariffs combined with DOGE’s cost-cutting. If you’re going to engineer a fiscal tightening and trade restrictions, then you need an offset from monetary policy.”
As the Department of Government Efficiency (DOGE), headed by Elon Musk, searches through federal computer systems to cut programmes funded by taxpayers, the tech billionaire says he is working to slash public spending to lower the federal deficit.
“The overall goal is to try to get a trillion dollars out of the deficit,” Musk said during a joint interview on Fox News with President Trump in February.
But Perkins pointed out that any cuts to US interest rates are “unlikely” as a result of the inflationary effects of Trump’s trade policies. The upshot, according to Perkins, is that the US economy is facing a “dangerous” set of pressures.
