It’s April 2—which means the slim possibility that President Trump’s “Liberation Day” was an extremely elaborate April Fools Day prank is now officially over.
But what exactly “Liberation Day” entails still remains a mystery (at least when we send this newsletter). We know there will be tariffs, tariffs, and probably more tariffs, but exactly how much, and on what, is not going to be revealed until Trump’s 4 pm “Make America Wealthy Again” event. In fact, Trump himself didn't even know this morning what the retaliatory tariffs would look like, and he was still considering various ideas, according to Bloomberg.
Those options include a 20% blanket tariff on all goods coming into the US, a tiered system, or different levies for different countries.
But however they’re sliced, investors should brace for impact.
“The 2025 tariffs are much larger than in Trump 1.0: The effective tariff rate has increased from 2.5% to approximately 9%. Wednesday’s reciprocal tariffs could push the effective tariff rate another 4 percentage points higher. Anything further could move tariffs beyond a revenue-raising ‘sweet spot,’” explained Head of Fixed Income at UBS Kurt Reiman in a note today.
But Goldman Sachs’ Alec Phillips warned that the impact could be even worse than the market is currently pricing in. “Markets expect a 9-point rate, but we see it doubling—officials want high stakes to negotiate.”
How will tariffs hurt the economy?
Does Smoot-Hawley ring a bell? To those of you who got an A in your high school history class, you may recall the US’s move toward aggressive protectionism in the 1930s marked by steep tariffs, which only exacerbated the Great Depression.
Making sense of market moves
Stay up to date on the latest market news with daily analysis of the investing landscape, served up Brew-style.
That’s not exactly a flattering comparison for the Trump administration. Today’s economists fear tariffs could trigger everything from higher prices to even a recession.
Reigniting inflation by raising prices on a whole range of consumer goods is one of the most widely expected economic effects of today’s levies. The Yale Budget Lab said yesterday that a 20% blanket levy could push inflation up by over 2% from current levels, and diminish Americans’ buying power by $3,400 to $4,200 per household.
Tariffs could also put the “stag” in “stagflation”: Goldman Sachs lowered its GDP projection for the full year by half a point, predicting GDP will rise just 1%, and upped its chances of a recession from its previous 20% estimate to 35%.
The already-struggling labor market could also weaken, analysts say, as companies hold off from hiring until they have more clarity about costs. Goldman raised its unemployment projection to 4.5%.
One silver lining? Just knowing what the tariffs actually are should bring some stability to markets and the economy.—LB