The Math Behind Trump's New Trade War

The Weekend Edition is pulled from the daily Stansberry Digest.

Talk about bad timing...

After the market closed on Wednesday and the world began to digest President Donald Trump's "Liberation Day" tariff announcements, furniture retailer RH (formerly called Restoration Hardware) was holding its scheduled quarterly earnings call.

The company's CEO, Gary Friedman, was in the middle of trying to explain away why shares of the stock were already down (amid a poor earnings report). That's when he evidently pulled up a chart of RH shares while on the call to check the latest price. His reaction was clearly unscripted...

Really? Oh, sh**. OK. I just looked at the screen. I hadn't looked at it.

RH shares were on their way to what became a 40% drop through Thursday's close...

These formal Wall Street analyst conference calls rarely have real moments like this. But Friedman echoed what a lot of people were thinking.

Which Stocks Fell Most After 'Liberation Day'

A big market drop...

Summing up his giant round of taxes on U.S. imports, Trump said he'd been very "kind." The market didn't agree.

On Thursday, the benchmark S&P 500 Index lost almost 5%, the tech-heavy Nasdaq Composite Index almost 6%, the Dow Jones Industrial Average 4%, and the small-cap Russell 2000 Index 6.5%. Global and U.S. oil prices dropped almost 7%.

The sell-off continued Friday.

Plus, the 10-year Treasury yield is now close to 4%. It was at 4.8% just before Inauguration Day. That points to lower longer-term growth expectations than a few months ago.

This all comes after Trump announced that the U.S. would charge "countries throughout the world" new tariffs equivalent to approximately half of what the White House deemed as "the combined rate of all their tariffs, non-monetary barriers, and other forms of cheating."

Additional tariffs on China would be 34%, on top of the 20% previously announced – so 54% in all. Trump also imposed a blanket 10% tariff on all U.S. imports, even from countries like Australia, with which the U.S. has a trade surplus (countries we export more to than we import).

Trump showed a chart with the numbers, and the White House later shared it (along with others, totaling new rates on about 180 countries)...

The reason? According to Trump, decades of trade policies have been terrible for the U.S. and generated gargantuan trade deficits. The goal with these tariffs – which American businesses will pay to Uncle Sam on imports from foreign nations – is to "make America wealthy again."

That may be so... But what these plans did for now was crush a market that had already been responding negatively to tariff policies. This move lower was a heightened version of the volatility we've seen in 2025.

And some stocks got hit much more than others... Like RH, which was the biggest loser of all the Russell 1000 large-cap companies (mostly because it sources more than 70% of its products from Asia).

But the sell-off was widespread. Eight of the 11 S&P 500 sectors were down at least 2% on Thursday. The biggest losers were energy (down roughly 8%), tech (down about 7%), and consumer discretionary (6%).

What You Might Not Know About These Tariff Numbers

A good, big question (and an answer)...

By now, we know why Trump says he's doing this... to generate hundreds of billions of dollars in revenue and help cut into the nearly $2 trillion U.S. fiscal deficit. A worthy cause, but at what expense?

Higher inflation could be one, and we don't know what else. Bloomberg estimates the new average tariff rate if these current numbers hold would be 22%, the highest rate since the early 1900s and 7 times the rate in 2021.

But where did these tariff numbers come from? An oddly specific 34% of additional tariffs on China... 46% on imports from Vietnam... and 49% on those from Cambodia?

Here's the deal...

The percentages are not "reciprocal" on rates currently charged on U.S.-made products. The percentages are instead tied directly to nominal trade deficits with other countries. These are two different things, and that's telling about Trump's intentions.

I am not making this up: The White House arrived at the numbers by calculating the U.S. trade deficit with a particular country and simply dividing it by imports (and of imported goods only, not services). As journalist James Surowiecki pointed out on the social platform X...

So we have a $17.9 billion trade deficit with Indonesia. Its exports to us are $28 billion. $17.9/$28 = 64%, which Trump claims is the tariff rate Indonesia charges us.

And then the Trump administration cut that percentage in half unless it ended up below 10%, in which case, that nation would be tariffed 10%. (That includes places like Heard Island and McDonald Islands near Antarctica... home to glaciers and penguins, not people.)

Perhaps this is why Trump repeatedly said in recent weeks that he didn't schedule "Liberation Day" on April 1 – April Fools' Day – because it might have been taken as unbelievable.

What Tariffs Might Mean for the Economy

With that explainer out of the way, let's get into what this all might mean moving forward...

Our Stansberry's Investment Advisory editor Whitney Tilson wrote a terrific synopsis of everything in his free daily e-letter earlier on Thursday...

To me, those charts from the administration look more like political propaganda... which actually is good news.

I would be more worried if the proposed reciprocal tariffs were based on a genuine analysis of the various trade barriers placed upon us by the countries with whom we have the biggest trade deficits, such as this one from Bloomberg posted on X by my friend and former colleague Enrique Abeyta:

To be clear, I think Trump is serious about reducing our trade deficits – part of the larger grievances he has long held against our allies who, he believes, are taking advantage of us.

Whitney cited the fact that Trump has been wanting to do something like this since the 1980s. (We've pointed this out before, too, as with this old interview from Trump with late-night talk show host David Letterman.) Whitney continued...

But the fact that the new proposed tariffs are rooted in such a nonsensical calculation of the "tariffs" other countries are imposing on us indicates to me that what we're seeing here is Trump the dealmaker.

Yesterday's announcement is most likely an opening gambit to force other countries to trade with us on better terms.

What could happen next in this "movie"...

As I wrote on Wednesday, Treasury Secretary Scott Bessent says that whatever tariffs were announced are intended to be a "ceiling" rather than "floor."

However, that ceiling turned out to be higher than expected... and so did the floor (with the 10% blanket tariff on all imports). To carry the metaphor forward, the framework looked more like a house on stilts.

In an interview on CNBC, Former Trump Treasury Secretary Steve Mnuchin said...

I do hope there's the ability to negotiate them down, because, as we've seen for certain businesses, it is going to take a long time to move that manufacturing base... And we've seen the stock market, particularly in certain stocks, react pretty negatively.

Eric Trump, one of the president's children, also alluded to room for negotiation in a post on X...

I wouldn't want to be the last country that tries to negotiate a trade deal with @realDonaldTrump. The first to negotiate will win – the last will absolutely lose. I have seen this movie my entire life.

We will see if this particular movie, Trade War, Part II, plays out the same way. Thursday morning, Commerce Secretary Howard Lutnick, one of the architects of the plan, went on CNBC and said...

I think what there's going to be is a world of fairness. Let's go try to figure out ways for the world to treat us more fairly and more properly.

Trump appeared to claim victory in the "Liberation Day" endeavor in a social media post already, writing...

THE OPERATION IS OVER! THE PATIENT LIVED, AND IS HEALING.

Trump repeated this analogy when talking to reporters on Thursday and predicted the stock market "will boom." Of course, the effects of tariffs haven't been realized yet.

Investors Should Prepare for More Tariff Uncertainty

There's a lot we don't know about how Trade War, Part II will play out...

We don't have a crystal ball. But some sectors and stocks have been "working" while others haven't, notably the Magnificent Seven.

The volatile pattern we've seen in stocks so far this year could continue. So some sectors and stocks are set to outperform others. As our friend Marc Chaikin, founder of our corporate affiliate Chaikin Analytics, said in a note to Stansberry Research readers...

Sharp, short-term drawdowns could become our new normal. Just like we saw during the Trade War in 2018.

Marc says what we've seen so far this year could just be the start of a "violent shift" that rips its way through the stock market. And while this volatility could spell financial disaster for millions of Americans, it doesn't have to be that way.

Last week, Marc debuted a brand-new free presentation sharing how you can protect and grow your wealth in the volatile weeks that could be ahead. The response to this event has been overwhelmingly positive. You can watch a replay of the event right here.

Good investing,

Corey McLaughlin

Editor's note: Marc is a legend on Wall Street. With a track record spanning 50 years, he accurately predicted the 2020 COVID-19 crash and the brutal 2022 market crash. Now, Marc is sounding the alarm again on a crash that could be much worse than anyone is prepared for... And he says there's one money move everyone should make immediately. Learn how to protect yourself here.