Trump Unveils Sweeping New Tariffs

Happy Wednesday! Reports emerged today that Elon Musk's time in Washington may be coming to an end amid concerns at the White House that the DOGE chief is becoming a political liability. But the big news today is that President Trump filled in the details on his new tariff program, and we've got details below.

Trump Unveils New Tariffs

President Donald Trump unveiled sweeping new tariffs on Wednesday as part of his effort to overhaul the global manufacturing and trade system in favor of the United States, including a 10% baseline levy applied to virtually all imports starting on April 5.

Appearing before his Cabinet and a group of supporters in the White House Rose Garden, Trump described the tariffs as partly reciprocal, aimed at what he portrayed as unfair trade practices by countries around the world. The tariffs are based on new calculations made by the White House that estimate the full weight of tariffs, taxes, currency manipulation and other trade barriers applied to U.S.-made goods by foreign countries. The new tariffs on the U.S. side are a percentage of the number calculated for each country.

Trump claimed that the current trade deficit is a national emergency, and the tariffs will be imposed under the International Emergency Economic Powers Act.

Countries described as "bad actors" will see higher rates. Goods from China, one the largest trading partners of the U.S., will see tariffs of 34%. Japanese goods will face a 24% tariff, while those from India will see a 26% levy. Products from nations in the European Union will be subject to a 20% tariff.

In addition, starting tomorrow, all foreign auto imports will get hit with a 25% tariff.

Hailing April 2 as "liberation day," Trump claimed the tariffs would soon make the country much wealthier. "Now it's our turn to prosper, and in so doing, use trillions and trillions of dollars to reduce our taxes and pay down our national debt," he said. "And it will all happen very quickly. With today's action, we are finally going to be able to make America great again, greater than ever before. Jobs and factories will come roaring back into our country and you see it happening already. We will supercharge our domestic industrial base."

Why more tariffs? The White House has provided multiple rationales for the tariffs, some of which contradict each other. The primary motive as of Wednesday appears to be boosting the economy by protecting domestic industries, in the hope that U.S. manufacturers will expand to satisfy rising demand from consumers turning away from more expensive foreign goods. With the tariffs, a Mercedes buyer, for example, might opt for a lower-priced Cadillac, to the benefit of General Motors, which will hire more workers and grow the economy.

"These tariffs are going to give us growth like you've never seen before," Trump said at the signing ceremony.

One problem for this theory is that American manufacturers, especially automakers, have built complex supply chains that stretch across North America and the world, and some of the parts they need will suddenly become more expensive, raising the price even of products assembled in the U.S. Domestic manufacturers may take advantage of the price hikes by their competitors, too, raising their own prices and enjoying fatter margins instead of grabbing more market share.

The protectionist theory also clashes with another rationale, which is raising revenues. Tariffs are import taxes, paid by importers - that is, by American firms and individuals - and they only go up if people keep importing. If they switch to domestic suppliers instead, as intended, the tariff revenues will fall as import volumes decline.

The Trump administration has been very aggressive with its revenue estimates. White House aide Peter Navarro, an economist sometimes referred to as Trump's trade czar, has claimed the tariffs could produce $600 billion a year in revenue, or $6 trillion over 10 years. While most economists agree that tariffs do raise revenues, they doubt the numbers could be anywhere near that large, with the Yale Budget Lab pegging its estimate at one-tenth that amount.

Experts also push back against the Trump administration's portrayal of tariffs as tax cuts and instead emphasize that tariffs are taxes paid in the U.S., with the costs distributed throughout the economy, however unevenly.

A third reason for the tariffs is to punish trade partners for various perceived infractions, including lax immigration rules, weak drug trafficking enforcement, maintaining high tariffs and internal taxes, and running high trade surpluses. But this also clashes with the other goals. If the offending trade partner changes its behavior, as intended, then the tariffs could be reduced or eliminated, weakening the protections and revenues the tariffs are supposed to provide.

Worries galore: Most economists believe that tariffs can play a role in protecting and fostering domestic industries if used judiciously but view an all-out trade war as a largely destructive force, with little to gain for all participants overall. The outlook is particularly grim if nations around the world respond with their own tariffs, as they are expected to do, pushing the trade war into a higher gear.

"If this trade war continues through Labor Day, the U.S. economy will likely suffer a recession this year," Mark Zandi, chief economist of Moody's Analytics, told AFP.

Business owners have expressed concerns as well, especially those directly exposed to tariff cost hikes. "I'm telling you right now, the impacts of these tariffs are going to make Americans lose jobs," a car dealer named Dave Kelleher from Pennsylvania told CNN.

The economic damage is expected to fall more heavily on lower-income households. Estimates from the Yale Budget Lab indicate that universal 20% tariffs would reduce disposable incomes in low-income households by as much as 5.5%, three times the size of the hit to higher-income households.

Democrats picked up on those warnings, slamming the tariffs as a price hike needlessly imposed by the Trump administration, in violation of Trump's promise to bring prices down for weary American consumers. "This is not liberation day, it's recession day," House Minority Leader Hakeem Jeffries said. "Republicans are crashing the American economy in real time and driving us to a recession. ... That's what the Trump tariffs are going to do: crash the economy."

Investors were not pleased by the new tariff regime, even if it fell short of their worst fears of a potential 25% universal tariff. S&P 500 futures lost about 2% after Trump unveiled the new tariffs this afternoon, just after the stock market closed at 4 p.m.

Fiscal News Roundup

• Trump Unveils Sweeping Tariffs in Stark Shift of Trade Policy – Wall Street Journal
• Trump Imposes 10 Percent Universal Tariff, Higher for Top Trade Partners – Politico
• Tracking Every Trump Tariff and Its Economic Effect – Bloomberg
• Jeffries Hammers Trump: It's 'Recession Day,' Not 'Liberation Day' – The Hill
• McConnell Breaks With Party To Reject Trump's Canada Tariffs – Politico
• Trump Tells Inner Circle That Musk Will Leave Soon – Politico
• Senate Unveils Plan to Fast-Track Tax Cuts, Debt Limit Hike – Bloomberg
• Republicans Weigh Selling Public Lands to Pay for Trump Agenda Bill – Politico
• House Deficit Hawks' Message to Senate on Its Budget: 'Go Back to the Drawing Board' – Politico
• Bessent Signals US on Debt-Limit 'Warning Track' for May or June – Bloomberg

Views and Analysis

• Trump Just Handed the Global Auto Market to China – Eduardo Porter, Washington Post
• The Hidden Loser in Trump's Auto Tariffs: Domestic EV Manufacturing – David Ferris, Politico
• Trump Breaks His Promise to Lower Prices – William A. Galston, Wall Street Journal
• Trump Says Global Trade Is Unfair. Does He Have a Point? – Ana Swanson, New York Times
• Who, Exactly, Is Trump Liberating With Tariffs? – Daniel Moss, Bloomberg
• America Is Headed for a Grim Fiscal Reckoning – Michael R. Bloomberg, Bloomberg
• Slashing the Public Health Workforce Hurts the US Economy – Washington Post Editorial Board
• I Just Saw the Future. It Was Not in America – Thomas L. Friedman, New York Times