Thoughts on the new tariff announcement

Well, we're on the other side of "Liberation Day"...

Yesterday after the close, President Donald Trump announced his much-anticipated reciprocal tariffs on all of our major trading partners (other than Canada and Mexico, where tariffs are governed separately by the United States-Mexico-Canada trade agreement – for these countries, Trump is threatening to impose 25% tariffs on most imports to the U.S. for what he says is their role in fueling the fentanyl crisis and illegal immigration).

As you would expect, markets are reacting negatively to the uncertainty and potential for a global trade war – with the S&P 500 Index down a staggering 4% as of earlier this morning.

The White House released the below chart, showing "Tariffs Charged to the U.S.A. Including Currency Manipulation and Trade Barriers" and "U.S.A. Discounted Reciprocal Tariffs," which range from a minimum of 10% to a maximum of 49% (on Cambodia).

(However, per the Wall Street Journal, note that the "new 34% tariff on China will add to previous duties, like the 20% tariff Trump imposed over fentanyl. The base tariff rate on Chinese imports will be 54%, before adding tariffs imposed during Joe Biden's presidency or Trump's first term.")

(The full list, which includes the uninhabited Heard and McDonald Islands, is in this New York Post article.)

At first glance, the numbers in the second column seem reasonable: In most cases, the proposed U.S. tariffs are around half what other countries are charging us.

But if these tariffs actually go into effect, they would be the highest in about a century, as the below chart from this post on social platform X from the WSJ's Greg Ip shows:

But I'm skeptical about whether this proposal is real... given that the numbers in the first column aren't actually "Tariffs Charged to the U.S.A." but instead are simply "the U.S. trade deficit divided by U.S. imports from that country," as Julian Klymochko – CEO of alternative-investment firm Accelerate Financial Technologies – notes in this post on X:

In posts on X, journalist James Surowiecki adds:

More oddly, the calculations are only based on the trade deficit in goods, excluding services, as Surowiecki points out in this post on X:

The White House confirmed this in a quote in the New York Post article I mentioned above – here's an excerpt from it:

The specific "reciprocal" tariff rate was half of the current trade imbalance because "the president is lenient and he wants to be kind to the world," a Trump aide told reporters.

"The numbers [for tariffs by country] have been calculated 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 trade practices, the sum of all cheating," a White House official said, calling it "the most fair thing in the world."

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 place 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.

Just consider the language in a letter he published in the New York Times back in 1987 (hat tip to my friend Marcelo Lima for finding this):

For decades, Japan and other nations have been taking advantage of the United States.

The saga continues unabated as we defend the Persian Gulf, an area of only marginal significance to the United States for its oil supplies, but one upon which Japan and others are almost totally dependent. Why are these nations not paying the United States for the human lives and billions of dollars we are losing to protect their interests?

And as the letter continued:

It's time for us to end our vast deficits by making Japan, and others who can afford it, pay. Our world protection is worth hundreds of billions of dollars to these countries, and their stake in their protection is far greater than ours.

Make Japan, Saudi Arabia, and others pay for the protection we extend as allies. Let's help our farmers, our sick, our homeless by taking from some of the greatest profit machines ever created – machines created and nurtured by us.

"Tax" these wealthy nations, not America. End our huge deficits, reduce our taxes, and let America's economy grow unencumbered by the cost of defending those who can easily afford to pay us for the defense of their freedom. Let's not let our great country be laughed at anymore.

(You can see an image of Trump's full letter on Marcelo's X post here.)

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 mostly likely an opening gambit to force other countries to trade with us on better terms.

That's why it's far from certain that these policies are going to trigger a recession this year. The odds of this on the real-money betting site Polymarket jumped from around 40% to around 50% on the news... but that's a coin flip, not a certainty. As of earlier this morning, the odds stood at 48%.

Yes, odds of a recession have gone up – but investors already know this: That's why the market is down.

And, as I've noted before, the damage here is self-inflicted... which means it can quickly be reversed.

So my advice remains the same: Don't get swept up in the hysteria right now and focus on the long run.

Best regards,

Whitney

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