Trump announces massive new 'Liberation Day' tariffs. Here's how they might affect you.

Yahoo

02-04-2025

On Wednesday, President Trump announced that the United States will hit back at any country that imposes trade barriers on American exports by subjecting them to sweeping 'reciprocal' tariffs — an unprecedented move that threatens to upend the global economy, experts say.
For Trump, disruption appears to be the point. 'My fellow Americans, this is Liberation Day," the president said in a speech from the Rose Garden. "For decades our country has been looted, pillaged, raped and plundered by nations near and far. ... Foreign leaders have stolen our jobs, foreign cheaters have ransacked our factories and foreign scavengers have torn apart our once beautiful American dream."
"But it is not going to happen anymore," he continued. "Reciprocal — that means they do it to us and we do it to them. Very simple. Can't get any simpler than that."
The president has spent much of his second term teasing, delaying, triggering — and occasionally even retreating from — big taxes on friends and foes alike: a 25% tariff on certain Canadian and Mexican imports here, two rounds of 10% tariffs on Chinese goods there. His 25% tax on imported cars and auto parts is set to start Thursday; last month, he reinstated a 25% levy on imported steel and aluminum. He's even threatened to slap a 200% tariff on European alcohol.
But Trump's new tit-for-tat tariffs are different because they're not specific to a single country or industry. Instead, they're universal — a whole system of taxation meant to fundamentally alter America's relationship with the rest of the world.
For anyone who has followed Trump's political career, even this latest escalation shouldn't come as a surprise. 'I always say 'tariffs' is the most beautiful word to me in the dictionary,' the president repeated during his inauguration festivities earlier this year.
But the actual impact of Trump's reciprocal tariffs could be more of a jolt.
'Tariffs are gonna make us rich as hell,' he promised in January. 'They're gonna bring our country's businesses back that left us.'
Economists, however, tend to see things differently. Here's how Trump's 'Liberation Day' tariffs could affect you.
Tariffs aren't a new obsession for Trump. 'I believe very strongly in tariffs,' he told journalist Diane Sawyer in 1988, nearly 20 years before his first presidential run. 'America is being ripped off. We're a debtor nation, and we have to tax, we have to tariff, we have to protect this country.'
Trump has long insisted that universal tariffs will level the proverbial playing field by incentivizing companies to retain American workers and ramp up U.S. manufacturing — all while funneling 'trillions and trillions of dollars" in new revenue to the federal government.
Trump has also railed against trade deficits — how much more money we spend on another country's goods and services than we earn from selling it ours — and vowed that tariffs will balance them out.
Now the president is finally putting his pet theory into practice.
Yet nearly all economists disagree with Trump's take, noting that a tariff is actually an import tax paid by the company doing the importing — not by the foreign country (or foreign business) sending its goods to the U.S.
The same experts have found that most importers simply pass the added cost of tariffs on to U.S. consumers by jacking up their prices — rather than going out of their way to replace the affected goods with American-made alternatives, which still tend to be more expensive. Then other countries retaliate with tariffs of their own, risking a global trade war and recession.
Meanwhile, any efforts to shift manufacturing to the U.S. take a long time and cost a ton of money — which is another expense that consumers might have to shoulder, at least in the short term.
The 'effect [of reciprocal tariffs] will be lower economic growth, higher inflation, higher unemployment, the destruction of wealth and a tax increase on American families,' economist Jason Furman, a former chairman of the White House Council of Economic Advisers, recently explained. 'It will deal a blow to the rules underlying the global trading system and further empower China.'
To understand how reciprocal tariffs could affect American consumers, it's worth looking first at something simpler: Trump's new 25% automobile tariffs.
The impact on foreign automakers — and the Americans who purchase foreign-made cars — is obvious. Most car companies are not extremely profitable, so they have limited room to maneuver. If importing a Volvo from Sweden is suddenly 25% more expensive, then the car itself is likely to get a lot more expensive, too.
But even domestic automakers — and foreign companies that manufacture their cars at least partially in the U.S. — will take a hit. A single car or truck can move back and forth between the U.S. and Canada up to eight times before it's fully assembled. Car parts come from all over the world. Taxing those imports at 25% whenever they cross the U.S. border will eat into profits, and prices will inevitably rise in response.
According to estimates by iSeeCars, an online car buying site, Trump's tariffs could add $15,000 to the price of a Ram 1500 pickup, $12,000 to a Toyota Tacoma pickup, $9,000 to a Subaru Forester S.U.V. and $6,000 to a Nissan Sentra sedan.
There are likely to be widespread knock-on effects as well. Used car prices could soar as demand surges. Car insurance could cost more (reflecting the rising cost of replacement parts). And U.S. car companies could find themselves further stretched by additional barriers from foreign governments.
So far, Trump and his allies have brushed off such concerns, dismissing them as short-term pain in the service of long-term gain. 'I couldn't care less if [automakers] raise prices, because people are going to start buying American-made cars,' the president recently told NBC News, adding that companies seeking to avoid cost increases could simply start building their cars in the U.S. with American-made parts.
But can automakers rely on Trump to keep his tariffs in place long enough for them to change how and where they manufacture cars? And what happens when Trump leaves office in 2028?
The president's new retaliatory tariffs are similar — except they're everywhere all at once. Seeking to counter not only other countries' tariffs but also 'nonmonetary barriers" such as currency manipulation, subsidies, exorbitant taxes and theft of intellectual property, the president held up a chart Wednesday showing the White House's calculated tariff rates for dozens of other countries — and said the U.S. will now charge those countries half as much, reciprocally.
Some of these new reciprocal rates, according the chart, are China at 34%, the European Union at 20%, Japan at 24% and India 26%.
Trump also announced that he will establish a universal baseline tariff of 10% that will apply to all countries — on top of any reciprocal tariffs or previous levies. That means a country like China will face a new 44% tariff in addition to the 20% Trump has already imposed.
Driven by uncertainty about the scope of Trump's plan, the S&P 500 ended March with its steepest monthly decline in more than two years. Businesses have paused on investing and planning ahead. European and Asian countries are poised to retaliate with tariffs of their own. If inflation accelerates — and the prices of groceries, housing and other everyday goods start to rise — consumers could pull back on spending. A recession could follow.
In order to encourage automakers to ramp up domestic manufacturing, Trump has insisted that his car tariffs are '100% permanent.'
But his new reciprocal tariffs could be more… flexible.
On a recent podcast, Trump explained that he is 'a big believer in tariffs because I think tariffs give you two things: They give you economic gain, but they also give you political gain.'
What Trump really means by 'political gain' is 'leverage' — leverage that is powerful enough, in his view, to stop a war.
'I can do it with a phone call,'' he boasted in August. 'We're going to charge you 100% tariffs.'' And all of a sudden, the president or prime minister or dictator or whoever the hell is running the country says to me, 'Sir, we won't go to war.''
With reciprocal tariffs, Trump has already signaled that he plans to use them to extract concessions from trading partners — much as he did recently on border issues with his on-again-off-again tariff threats against Mexico and Canada.
'I'm certainly open to it, if we can do something,' Trump said last week. 'We'll get something for it.'
This is hardly Trump's first go-round with tariffs.
During his first four years in office, the president almost immediately 'hit a slew of countries with tariffs on steel and aluminum,' according to the New York Times, then 'wielded those taxes as leverage against Canada and Mexico to renegotiate NAFTA.'
He followed up in 2018 with 'significant tariffs' on Chinese goods — including smart watches, chemicals, bicycle helmets and motors — 'then continued to ratchet them up over the next 18 months until his administration signed a trade deal with Beijing in January 2020.'
Ultimately, the percentage of total imports covered by tariffs more than doubled during Trump's presidency — and his successor, President Joe Biden, kept many of Trump's import duties in place.
'When people or countries come in to raid the great wealth of our Nation, I want them to pay for the privilege of doing so,' Trump tweeted in 2018. 'It will always be the best way to max out our economic power. We are right now taking in $billions in Tariffs.'
But according to a recent summary of the economic research conducted by the Harvard Business Review, Trump's 2017-21 'tariffs didn't lower the cost of imports from China' and 'manufacturing jobs didn't come back to the U.S.' — yet 'U.S. consumers paid more on specific goods' and 'sectors targeted by retaliatory tariffs,' especially agriculture, 'took a hit.'
Overall, Trump raised average tariffs by about 1.5 percentage points during his first term. But so far this year, they've gone up another six points — and reciprocal tariffs could ultimately lead to increases 'five to 10 times as large' as the ones Trump imposed last time around, according to Furman.
Their impact is likely to be much larger as a result.
'The 2018-to-2019 trade war was immensely damaging, and [Trump's universal tariff plan] would go so far beyond that it's hard to even compare,' Erica York, senior economist at the Tax Foundation, a right-leaning think tank that opposes the tariffs, told the Washington Post earlier this year. 'This threatens to upend and fragment global trade to an extent we haven't seen in centuries.'