Trump unveils 'reciprocal' tariffs plan with markets on edge

Yahoo

02-04-2025

President Donald Trump announced his plans for reciprocal tariffs on Wednesday afternoon, just after financial markets closed.
The president said his tariffs will be applied on a country-by-country basis, with the U.S. calculating the combined rate of tariffs, non-monetary barriers, 'and other forms of cheating.' The U.S. will then charge those countries 'approximately half' of their own charges, Trump said.
China, for example, will be hit with 34% tariffs, while the European Union will be slapped with 20% duties, according to a graph Trump held up at a news conference. Vietnam, Taiwan, and Japan will be hit with respective duties of 32%, 24%, and 26%. A minimum baseline tariff of 10% will be put on imports from all other countries, Trump added.
Trump has promised that his reciprocal tariffs will rectify years of unfair trading practices that have driven up goods trade deficits, which the president has said make the U.S. seem weak. In 2024, the U.S. trade deficit in goods hit a record $1.2 trillion.
'April, 2, 2025, will forever be remembered as the day American industry was reborn, the day America's destiny was reclaimed, and the day that we began to make America wealthy again,' Trump said from the White House's Rose Garden, describing his tariffs as the 'declaration of economic independence.'
The announcement alleviates, for now, some of the uncertainty that has plagued Wall Street investors, small businesses, and major corporations alike as they waited for the White House to settle on the next steps in Trump's growing trade war. But escalation is likely still on the table, as the president has repeatedly made clear — along with retaliation by countries hit with new levies.
Goldman Sachs (GS) economists recently increased their forecasted odds of a recession over the next 12 months to 35%, from 20%.
Peter Navarro, a senior Trump trade adviser, has said tariffs will raise $600 billion each year, which would amount to the largest tax hike in U.S. history. Tariffs are taxes paid by businesses importing foreign goods from designated countries and are often passed along to consumers.
The S&P 500 Index, Nasdaq Composite, and Dow Jones Industrial Average were all slightly up when the markets closed Wednesday. All three indexes are in the red year-to-date, primarily because of tariff fears.
Small businesses have been particularly worried because they lack the resources to effectively track major changes and adjust their pricing or sourcing, Netstock CEO Ara Ohanian said in an email. Seventy percent of small businesses recently surveyed by Netstock cited rising costs as their biggest challenge stemming from tariffs.
'It's kind of 'reciprocal light,'' said Jamie Cox, managing partner for Harris Financial Group. 'I was expecting a lot worse, to be honest...I think markets were way more negative than they should have been, given the circumstances.'
Earlier Wednesday, the Commerce Department said it would implement 25% duties on beer and empty aluminum cans beginning Friday morning. That expansion of the president's prior tariffs on aluminum and steel is expected to most heavily affect Constellation Brands (STZ), which imports its beer from Mexico.
On Thursday morning, 25% tariffs on imported vehicles will also be implemented; that will be expanded to include foreign car parts by May 7. The Anderson Economic Group (AEG) estimates that those tariffs could cost consumers more than $30 billion across one full year, assuming that only some of the costs are absorbed by automakers.
Every major automaker will be affected by those tariffs because no cars currently sold in the U.S. are entirely American-made, according to the National Highway Traffic Safety Administration. Tariffs are expected to increase costs by up to $20,000 for some imported models, such as vehicles made by Mercedes-Benz (MBGAF) and Volkswagen (VWAGY), the AEG said.
Retaliation is likely to come from major trade partners, including the EU, Canada, and China. Beijing levied some tariffs and took action against American companies last month after the U.S. raised its tariffs, while Canada has its own retaliatory measures ready. Mexico plans to announce its retaliation measures on Thursday.
'Europe has not started this confrontation,' Ursula von der Leyen, the president of the EU's European Commission, said in a recent speech. 'We do not necessarily want to retaliate but, if it is necessary, we have a strong plan to retaliate, and we will use it.'
Countries that want to avoid Trump's tariffs need to 'terminate' their trade barriers and stop manipulating their currencies, the president said. But Israel, which canceled its remaining tariffs on U.S. products this week, will face a 17% tariff, according to the graph Trump held at the press conference. It's unclear if the U.S. will follow through on that duty.
This is a developing story and will be updated.
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