This Wednesday (April 2), the U.S. will experience what is being called “Liberation Day,” with President Trump claiming that this day will mark the U.S. liberation from the “unfair trade system.” On this day, the U.S. government will announce and implement “reciprocal tariffs” targeting foreign trade partners, which could trigger retaliatory measures from other countries.

Policy Content and Background

The Trump administration's "reciprocal tariff" policy is a practice of imposing tariffs on imported foreign goods with the aim of addressing trade imbalances. By raising the cost of imported goods, the U.S. intends to force other countries to adjust their trade policies. In essence, the U.S. will impose tariffs on goods from countries or regions that have been deemed to engage in unfair trade practices, with the tariffs being equal to the value of the tariffs that those countries impose on U.S. exports. The policy is rooted in the Trump administration’s concerns over trade deficits with countries such as China, particularly regarding the long-standing trade imbalance with China. The “reciprocal tariff” will apply to products from major trading partners, including China and the European Union.

Policy Impact

As the "reciprocal tariffs" policy is set to be implemented, the financial markets are likely to experience significant volatility. Stock markets may face short-term declines, especially for companies reliant on global supply chains, which could be severely impacted. In the long term, the "reciprocal tariffs" policy could lead to prolonged instability in global trade. The increase in tariffs may reduce multinational corporations' profits in global markets, potentially impacting global economic growth. Furthermore, this could lead to a downward revision of economic growth expectations and rising inflation. Goldman Sachs has raised the probability of a U.S. economic recession from the previous 20% to a higher percentage. It has also raised its forecast for U.S. core personal consumption expenditure (PCE) inflation by the end of 2025 to 3.5%, significantly above the current level and well above the Federal Reserve’s 2% target. Additionally, it has lowered the U.S. GDP growth forecast for 2025 to 1%, with an expected rise in the unemployment rate to 4.5% by the end of 2025.