Trump’s “Liberation Day” Tariffs: A New Phase of Trade Negotiations or the Start of a Global Trade War?
On Wednesday 2nd April, President Trump marked what he called “Liberation Day” with a sweeping announcement on tariffs. He introduced a 10% minimum tariff on all imported goods starting April 5, followed by sharply higher tariffs from April 9 on countries with which the US runs large trade deficits. Notably, this includes a 20% rate on the EU, 24% on Japan, and an additional 34% on China, which would push the average tariff rate on Chinese goods to 54%. Canada and Mexico are currently exempt from any new measures.
The outcome was somewhat more aggressive than expected, and markets are reacting accordingly. The S&P 500 fell by 4.96%, while the Nasdaq dropped 5.97% in trading yesterday, as investors priced in the potential implications of higher input costs, slower global trade, and increased policy uncertainty. According to JPMorgan estimates, this policy shift will raise the average effective US tariff rate from around 10% to just over 23%; a significant increase for the world’s largest economy and a clear signal of the administration’s intent to challenge the status quo on trade.
The President framed the move as a reciprocal response to foreign trade practices he described as unfair, highlighting subsidies, non-tariff barriers, and limited access to US products in global markets. However, he emphasised that the door remains open for countries to negotiate these tariffs down if they reduce their own trade barriers. While the methodology behind the specific percentages is unclear, they appear linked to the size of bilateral trade deficits rather than any formalised framework.
We have previously noted that Trump often uses tariffs as a negotiating tool rather than a permanent economic stance. His strategy typically revolves around applying maximum pressure to bring other parties to the table, with the goal of renegotiating terms rather than permanently decoupling. In this context, these latest measures may be designed to induce concessions rather than signal an enduring shift toward protectionism.
That said, this is not without risk. There is a clear possibility that trading partners respond with their own retaliatory tariffs, especially China and the EU, raising the threat of a more entrenched and broad-based trade conflict. If a full-scale trade war were to emerge, it could have a more material impact on global growth, business confidence, and corporate earnings.
Still, it is important to recognise that the US enters this standoff from a position of relative strength. Domestic economic indicators remain solid, consumer spending is healthy, and the labour market is resilient. By contrast, many US trading partners are facing more challenging macroeconomic conditions, which may ultimately incentivise negotiation over escalation.
We are likely near peak policy uncertainty, and markets are now in the process of digesting both the immediate implications and the possible longer-term outcomes. As such short-term volatility may persist as markets reprice but as clarity emerges markets typically move on quickly. Furthermore, while business sentiment may be temporarily affected, the impact of tariffs, if not followed by a deeper conflict, tends to be a one-off adjustment, not an enduring drag on growth or inflation.
Any correction in market valuations that occurs as a result could therefore create opportunities for long-term investors. For context, historical data shows that investing every day after a 15% peak-to-trough drawdown in the S&P 500 has delivered a 12% average return over the following year since 1950.
Our base case remains that some form of negotiation will emerge. A full-scale trade war is in no one’s interest, including the US, and while the rhetoric is heated, the economic stakes may ultimately lead to compromise. That said, we are closely monitoring developments for any signs of sustained retaliation that could materially shift our outlook.
At Sigma Private Office, we remain focused on the long-term. Geopolitical shocks and policy shifts often lead to short-term volatility, but they rarely cause bear markets or change the underlying fundamentals of quality businesses. We continue to emphasise diversification, global exposure, and staying invested amid the volatility.
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