President Donald Trump marked April 2, 2025, as "U.S. Liberation Day," announcing sweeping tariffs that have rocked global markets and reversed decades of American trade policy. From the White House Rose Garden, Trump unveiled a 10 per cent universal tariff on all imports and additional "reciprocal tariffs" based on bilateral trade deficits. His message was blunt: the era of the United States getting "ripped off" by foreign countries and lopsided trade deals that harmed American workers is over.
Trump's move torches the multilateral trading system the US itself helped create after World War II-scrapping the General Agreement on Tariffs and Trade (GATT) and its successor the World Trade Organization (WTO). In its place, Trump introduces a high-stakes game of bilateral dealmaking, where tariffs are wielded like weapons against friend and foe alike, and the stability of the global economy is treated as collateral damage-all under the banner of "economic nationalism."
The immediate market reaction was brutal. Within 48 hours, the "Magnificent 7" tech stocks-Meta, Apple, Nvidia, Alphabet, Amazon, Tesla, and Microsoft-lost a combined $1.8 trillion in market value. Apple alone shed $443.5 billion. The Dow Jones Industrial Average fell 14.9 per cent, the Nasdaq 22.7 per cent, and the S&P 500 sectors across the board plunged into correction or bear market territory. A staggering amount of $6 trillion in equities wiped out in just two days.
Bank stocks were hammered as well, with JPMorgan, Bank of America, and Goldman Sachs leading a $279 billion loss in market capitalisation. JPMorgan warned that a U.S. and global recession now appears inevitable. History may record this week as the moment a trade war sparked a self-inflicted global downturn.
A RADICAL SHIFT: At the heart of Trump's plan is a universal 10 per cent tariff on every import into the US. On top of that, the administration will levy additional "reciprocal" tariffs targeting nations with which the US runs a goods-trade deficit, calculated through a crude formula: the ratio of imports to the bilateral deficit.
Under this formula, China, which racked up a $295 billion deficit in 2024 while exporting $439 billion to the US, would face a brutal 67 per cent tariff. Yet the administration granted a 50 per cent "friendship discount," slapping only a 34 per cent tariff on Chinese goods. Applying the same discount elsewhere, Bangladesh faces a 37 per cent tariff, India 26 per cent, Taiwan 32 per cent, Japan 24 per cent, and the European Union 20 per cent. In a twist of irony, geopolitical foes like Iran (10 per cent) and Venezuela (15 per cent) get off easier than America's closest allies.
The tariff formula also appears to factor in hard-to-measure non-tariff barriers-like currency manipulation, subsidies, and regulatory roadblocks-longstanding grievances in Trump's global trade critique. Yet administration officials suggest there's "wiggle room" for countries willing to negotiate, even as they warn against retaliation.
FLAWED METRICS: Trump administration's focus on goods-trade deficits misses a larger truth: the US runs a substantial services surplus with much of the world. In sectors like finance, technology, education, and research, the US is the world leader. Yet Europe faces a 20 per cent tariff despite being a major importer of US services. China and India, too, are major buyers of US educational and tech services, yet find themselves subject to harsh penalties.
Moreover, while manufacturing carries political clout, America's true comparative advantage no longer lies in factories and assembly lines. Workers who thrive in high-tech industries cannot simply be shifted into textile mills or shoe plants. The US edge is in innovation, entrepreneurship, and services-realms that Trump's tariff logic completely overlooks.
POLITICAL IMPERATIVES: Tariffs may not make economic sense; they however make political sense-for now. Trump's core support is concentrated in states-in so-called Rust Belt-hollowed out by globalisation: Michigan, Pennsylvania, Wisconsin, and Ohio. The North American Free Trade Agreement (NAFTA), China's WTO accession, and automation devastated the Rust Belt. The "China Shock" alone cost as many as 2.4 million American jobs between 1999 and 2011.
For Trump, tariffs offer a visceral symbol of standing up for American workers against a "rigged" global system. Whether or not they help manufacturing in practice, they reinforce his populist "MAGA" brand.
CLOSING THE BACK DOOR: Trump's new tariff also closes loopholes of his trade policies during his first term. In his first term, tariffs on Chinese goods prompted many Chinese companies to relocate to Mexico to sidestep duties under the USMCA. Between 2018 and 2024, Chinese firms invested $12.3 billion in Mexican manufacturing, creating 135,000 jobs.
This time, the administration is closing the loophole. Tariffs will now target Chinese firms operating through third countries. The only silver lining is that imports from Canada and Mexico are exempt if they comply with the USMCA, but cars and trucks assembled in the two countries will still be taxed 25 per cent on their non-US components.
THE RISK OF RETALIATION: Major economies are already firing back. China slapped a 34 per cent tariff on all US exports, a blow aimed squarely at one of Trump's key constituencies-American farmers. Europe is gearing up to strike at U.S. tech giants with retaliatory measures, while Japan and South Korea are weighing semiconductor export curbs that could cripple critical American industries.
A full-scale trade war now looms. Tit-for-tat tariffs will inflate consumer prices, disrupt supply chains, and chill investment. The risk of a synchronized global recession is rising fast.
Economists inevitably draw comparisons to the Smoot-Hawley Tariff Act of 1930-the round of protectionism that deepened and prolonged the Great Depression. Today's world is even more interdependent. Supply chains are complex; capital flows are instant; global markets react within seconds. Already, global equity markets have lost over $10 trillion in value since Trump's announcement. If history is any guide, protectionist shocks do not end well.
LEGAL BATTLES AHEAD: There are also constitutional issues at stake. Article I, Section 8 of the US Constitution gives Congress-not the president-authority over trade policy. However, over decades, Congress has ceded much of that power through legislation: Trade Expansion Act of 1962 (Section 232)-permits tariffs for national security; Trade Act of 1974 (Section 301)-allows tariffs against unfair trade practices; International Emergency Economic Powers Act of 1977-permits sweeping action during emergencies.
Trump is invoking these authorities aggressively. Legal challenges are likely. Courts may be reluctant to overturn presidential discretion in trade matters, but the sheer scale of this action invites scrutiny.
A DANGEROUS GAMBLE: Trump's tariff blitz marks the most disruptive shift in US trade policy since Richard Nixon ended the Bretton Woods system in 1971. It is a direct assault on the rules-based global order.
The president believes he can bend the world to America's will through economic coercion. But the risks are staggering: alienated allies, wounded markets, a contracting economy, and an America more isolated than empowered. In his inauguration speech, Trump declared, "We will tariff and tax foreign countries to enrich our citizens." It is a bold gamble. But if history, economics, and markets are any guide, it is one with perilous odds.
Dr CAF Dowlah is a retired Professor of Economics and Law in the United States. Currently, he serves as the Chairperson of the Bangladesh Institute of Policy Studies. Chair-BIPS@bipsglobal.org
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