At the core of Trump’s presidential campaign in 2024 was his promise to reshape the economy. Now, as president, he has enacted tariffs worldwide as part of his “America First” policy. On April 5, during the White House Rose Garden ceremony, President Trump signed Executive Order 14257 which declared a national emergency citing “a large and persistent US trade deficit” which he aims to correct via tariffs. The specific policy this enacted is two-fold:
- A 10% tariff on all imported goods effective April 5, 2025
- Country-specific tariffs enacted on 57 countries that currently have large trade deficits with the US
The logic behind this policy, as explained by President Trump, is to protect American industries, promote American goods, and overall reduce the trade deficit of the country. This displays a dramatic change in U.S. national and economic policy away from free trade to a level of protectionism and economic nationalism not pursued in generations. However, the effects of such universal tariffs have led to great economic uncertainty both domestically and worldwide.
Tariffs are an economic tool that governments utilize by enacting a tax on goods and services imported from other countries. Countries use tariffs to protect their local industries, as the additional tax on imported goods encourages consumers to purchase domestically. Tariffs can also be used as a political tool to pressure or punish other nations. In either case, the burden of paying the additional tax ultimately falls on the consumer. Overall, there are three types of tariffs:
- Ad Valorem tariffs: a percentage of an item’s value
- Specific tariffs: a fixed fee per unit
- Compound tariffs: combines Ad Valorem and Specific tariffs
Trump’s tariffs are Ad Valorem, with a default of 10% on all imports and specific percentages on certain countries. China was hit with the highest specific tariff, totalling to 145%.
Impacts of this executive order were felt immediately. The stock market reacted negatively, with the Dow Jones Industrial Average falling almost 4,000 points over a two-day period. The S&P 500 and Nasdaq experienced severe declines as well. The tariffs announcement led to a large sell-off in the markets and many economists have also upped their forecast on the likelihood of a recession. From the perspective of the Federal Reserve, inflation concerns have also hiked as predictions for consumer pricing are up by 7.1%. In terms of consumer behavior, a lot of people have been exiting the stock market to ensure their savings and retirements aren’t being tampered with. Additionally, a lot of people fear that prices will rise, enabling them to stockpile on fundamental items now.
In terms of international response, many countries have opposed the U.S.’ decision. Some countries are exploring alternative partnerships while others are applying retaliatory tariffs against the U.S.. China in particular has announced a 125% tariff on American imports and has halted the export of rare earth metals. In response, President Trump has also stated that he is open to conversation but will not be repealing the tariffs. Since then several exemptions have been made. For example, the higher reciprocal tariff on certain electronic items such as laptops, computers, smartphones and semiconductors will be exempt from the country-specific tariffs but will still have a baseline 10% tariff. A 90-day pause was also implemented starting April 9, due to the instability caused by the original tariff announcement. The country-specific tariffs are halted for a 90-day timeframe with the exception of China. The standard 10% tariff on all goods is still active.
Since then, the Trump administration is reviewing the trade agreements for several countries to reach common ground. However, no agreements have been reached yet. It remains to be seen what implications tariffs will have once this 90-day period concludes.
