A week ago, President Trump announced the implementation of reciprocal tariffs on a day he called “Liberation Day.” It included a baseline 10% tariff on all imports and a higher tariffs on certain countries, many of whom were big trading partners.
Many of the listed countries reached out to begin trade negotiations. The stock market responded extremely negatively, with multiple days of significant losses.
Then today, President Trump announced on social media that there was to be a 90-day pause because so many of the listed countries did not respond with their own retaliatory tariffs. The only exception was China, who imposed an 84% tariff. Trump announced that Chinese imports would now face a 125% tariff.
While the stock market responded favorable, the Dow jumped by over 2,000 points, this was a welcome sign but I’d argue this doesn’t change anything.
It’s a Temporary Pause
Fundamentally, the tariffs are merely paused. This was not a change in policy.
This means that in 90 days, we could be experiencing this situation all over again.
For U.S. businesses, the turning on and off of tariffs causes a lot of problems. Supply chains are not easily replaced and the fear of huge tariffs, such as the 46% tariff on Vietnam, is creating significant uncertainty for many businesses. They may have already begun to make changes in their supply chain that will be expensive and cause additional problems.
China Trade War Still Looms
While other countries had a pause on their tariffs, the tariffs on China were increased.
China is our third largest trading partner and in 2024, the United States imported $438.9 billion from them. The United States only exported $143.5 billion, a deficit of nearly $300 billion.
Only Canada and Mexico rank higher in terms of imports, but our deficits are far lower because the United States exports so much to those countries as well.
By escalating the tariffs, we risk a trade war with our largest trading partner. This doesn’t change with the 90 day pause.
Recession Fears Persist
Tariffs increased the probability of a recession but pausing them doesn’t suddenly make the risk of a recession go away. If we were on soft economic footing before, the threat and recission of a tariff won’t help the economy get stronger.
Consumer confidence was at a 12-year low in March, which predated the “Liberation Day” speech. It’s unlikely to have improved in the last few weeks and, if nothing else, has probably gotten worse given the crash and partial recovery of the stock market.
The stock market may have shot up today but the economy remains the same.
