The White House waited until after the closing bell on the afternoon of April 2, “Liberation Day,” before President Donald Trump announced the details of his long-awaited tariff regime. For the sake of the nearly two-thirds of people who have money invested in the stock market, it’s probably good that the administration did.
In the immediate aftermath of Trump’s announcement that he would impose a universal 10% minimum tariff on all imports into the United States with no exceptions, S&P futures plummeted by more than 3% and Nasdaq futures by more than 5%. Dow Jones Industrial Average futures fell by 2.5%, and gold prices, viewed as a hedge against the risk of the collapse of other equities, surged above a record of more than $3,200 per ounce.
The wheels fell off the investor wagon, not just because of the sheer scope of the tariffs — though the scope was vast, with the 10% minimum levy alone projected to hike taxes by nearly $500 billion in one year, the single highest peacetime tax hike as a percentage of GDP in the nation’s history. Rather, as outside observers dug into the details of Trump’s country-specific “reciprocal” tariffs added on top of the 10% baseline, markets almost unilaterally realized, “Holy hell, this entire plan was written by ChatGPT.”
Theoretically, the additional reciprocal tariffs were supposed to be just 50% of the tariff levied by the “worst offenders” on U.S. exports into said countries, with Trump claiming he was only imposing 50% of other countries’ effective tariffs as an act of “kindness.” But the tariffs listed on the White House’s printout provided at Trump’s Rose Garden address didn’t make any sense.
For example, Trump’s “reciprocal” tariff of 46% on Vietnamese imports was based on the claim that the country imposes an effective 90% tariff on our exports. But according to the White House’s own International Trade Administration website, American exports to Vietnam face average tariffs of 15% or less. Similarly, Trump’s reciprocal tariffs on imports from Taiwan and Japan are 32% and 24%, respectively, but the two countries levy import tariffs of 6% and 4%, per trade.gov.
A senior White House official claimed that these numbers were the product of an advanced algorithm concocted by the Council of Economic Advisers “based on the concept that the trade deficit that we have with any given country is the sum of all the unfair trade practices” and “the sum of all cheating.”
In reality, the White House’s modus operandi was more mercantilist than Machiavellian. And within an hour of populist panic, cyber sleuths figured out just how lazy the White House was in writing its rubric of “reciprocal” tariff rates.
Go ask ChatGPT what an easy way to calculate an optimal tariff is to put U.S. markets on an even playing field across the globe, with a universal minimum of 10%. The large language model will churn out a formula based on the 18th-century delusion that a nation’s wealth was finite and determined by its trade balance: our trade deficit with a given country divided by our imports from said country. It’s why a famously free-trade country such as Japan gets smeared as a high-tariff one and why a nation such as Ecuador, which uses the U.S. dollar as its currency, gets branded a currency manipulator.
The sheer sloth of delegating global trade policy to ChatGPT would also explain why the Antarctic wasteland of Heard and McDonald Islands — human population: zero, penguin population: unknown — got slapped with 10% tariffs while Russia remained conspicuously absent from the list.
A preliminary measure by Capital Economics estimates the average levied of nation-specific reciprocal tariffs on U.S. imports at more than 19%, while JP Morgan anticipates that the “Liberation Day” tariffs could boost personal consumption expenditures prices by 1% to 1.5%.
“The resulting hit to purchasing power could take real disposable personal income growth [in the second to third quarters of the year] into negative territory, and with it the risk that real consumer spending could also contract in those quarters,” the bank wrote in a memorandum hours after Trump’s announcement. “This impact alone could take the economy perilously close to slipping into recession. And this is before accounting for the additional hits to gross exports and to investment spending.”
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Whatever hope Wall Street held out that Trump’s threats were all a mere strategy to cajole other nations into freer trade was dispelled by both words and actions. Israel, which reduced its tariffs on American imports to zero, was still slapped with a 17% tariff, and Singapore, which was importing our goods duty-free for years, was still stuck with the 10% minimum. But more importantly, the White House made clear that the national emergency was not the unfair trade of other nations’ tariffs but rather the very existence of a trade deficit at all.
In other words, the global economy continues to be held hostage by the delusion at the heart of Peter Navarro’s trade fantasy, as I wrote to you all last month, and I will reiterate this point, verbatim: If the mercantilists get their way and America retreats into autarky, GDP probably won’t actually go up, but prices, which Trump was voted into office to reduce, certainly will rise. In the longer run, America could no longer rely on our former allies and enemies alike to bankroll a national deficit that neither party has any interest in balancing.