Pres­i­dent Trump’s “Lib­er­a­tion Day” ex­ec­u­tive or­der of April 2, 2025, in­tro­duced a “Rec­i­p­ro­cal Tar­iff Pol­i­cy” in re­sponse to the na­tion­al emer­gency sup­pos­ed­ly caused by for­eign trade and eco­nom­ic prac­tices. Tar­iffs start­ed at a min­i­mum rate of ten per cent on top of ex­ist­ing tar­iffs for all US trade part­ners and size­able ad­di­tion­al in­creas­es on a sub­set of 57 trade part­ners. 

The list con­tained a “few” er­rors as it in­clud­ed un­in­hab­it­ed is­lands. Most im­por­tant­ly, the tar­iffs ex­ceed the pro­tec­tion­ist mea­sures of the 1930s.

“Lib­er­a­tion Day” is part of the process of “Mak­ing Amer­i­ca Great Again” (MA­GA), or mak­ing Amer­i­ca wealthy again. A tar­iff is gen­er­al­ly passed on to the con­sumer and, there­fore, hurts de­mand as it has an im­me­di­ate in­fla­tion­ary im­pact by in­creas­ing prices.

High­er prices re­duce spend­ing pow­er and could lead to a re­ces­sion or stagfla­tion. The tar­iffs were high­er than an­tic­i­pat­ed and all-en­com­pass­ing. Hence, the pletho­ra of crit­i­cisms. Stock mar­kets around the world re­spond­ed neg­a­tive­ly as they viewed the mea­sure as bad for busi­ness. Sen­a­tor Ru­bio de­scribed this re­ac­tion as an ad­just­ment process and sug­gest­ed the ben­e­fits would be seen in due course. The Fed­er­al Re­serve chair­man said it was too soon to ad­just mon­e­tary pol­i­cy.

Gillian Tett, a Fi­nan­cial Times colum­nist speak­ing to the BBC, es­ti­mat­ed that stock mar­ket loss­es were huge. US stock mar­kets lost $6 tril­lion, whilst the oth­er stock mar­kets around the world lost $8 tril­lion. For com­par­i­son pur­pos­es, the world’s GDP was es­ti­mat­ed at $115 tril­lion in 2023 (all in USD). Lead­ing uni­ver­si­ty pro­fes­sors de­scribed Trump’s speech as bad eco­nom­ics, with one call­ing it “eco­nom­i­cal­ly il­lit­er­ate.”

Bloomberg News head­lined the stock mar­kets sell off as “Oblit­er­a­tion” and the pres­ti­gious week­ly “Econ­o­mist” Mag­a­zine head­line was “Ru­ina­tion Day”.

The US Pres­i­dent has spe­cial emer­gency pow­ers al­low­ing Trump to by­pass the Sen­ate and the House who would oth­er­wise be re­spon­si­ble for all tax mea­sures. Hence the tar­iff or­der was deemed an emer­gency mea­sure, al­low­ing Trump to clothe the mea­sure in na­tion­al­ist sen­ti­ment to gain pub­lic sup­port. Politi­cians need sup­port­ive sen­ti­ment, es­pe­cial­ly when a mea­sure re­sults in neg­a­tive con­se­quences.

Trump’s ar­gu­ment for the in­creased tar­iffs is root­ed in eco­nom­ic na­tion­al­ism. Ac­cord­ing to Trump, Amer­i­ca has been “loot­ed, pil­laged, raped and plun­dered by na­tions near and far.”

The ev­i­dence is that the US has been in con­tin­u­ous trade deficit, mean­ing that it has been im­port­ing more than it has been ex­port­ing. The oth­er ar­gu­ment is that coun­tries have stolen US jobs be­cause US com­pa­nies are man­u­fac­tur­ing over­seas. Trump ar­gues that this has hap­pened be­cause of un­fair trade prac­tices, high tar­iffs and cur­ren­cy ma­nip­u­la­tion. Hence, rec­i­p­ro­cal tar­iffs.

What he has not said is that the US en­gi­neered a post World War II or­der based on the pri­ma­cy of the US dol­lar and the low­er­ing of trade bar­ri­ers start­ing with the Gen­er­al Agree­ment on Tar­riffs and Trade in 1947 and cul­mi­nat­ed in the prin­ci­ple of Most Fa­vored Na­tion mean­ing that the best terms agreed with one coun­try had to be giv­en to oth­er trad­ing part­ners.

This is the cor­ner­stone of the World Trade Or­ga­ni­za­tion. In the process, the US got rich­er as did the rest of the world ex­cept for the So­vi­et Union and its al­lies which were not part of this trad­ing sys­tem. Chi­na joined the WTO in 2001, and Rus­sia joined in 2012.

Since the US was the largest econ­o­my in the world, the US dol­lar be­came the world’s re­serve cur­ren­cy, giv­ing the US tremen­dous lever­age and buy­ing pow­er.

The US dol­lar’s at­trac­tive­ness was en­throned through bi­lat­er­al agree­ments (such as the Plaza Ac­cord in the 1980s) al­low­ing com­modi­ties to be priced in US dol­lars on in­ter­na­tion­al mar­kets, ce­ment­ing “the dol­lar’s” pri­ma­cy.

Every coun­try ac­cept­ed US dol­lars in pay­ment, which al­lowed the US to ac­cu­mu­late large deficits with the ex­port­ing coun­tries rein­vest­ing much of their sur­plus­es in the US fi­nan­cial mar­kets. Hence the term “US ex­cep­tion­al­ism.”

Dur­ing this pe­ri­od, US man­u­fac­tur­ing de­clined as a per­cent­age of GDP from 20-25 per cent in 1960 to 11 per cent, in 2021. In 2021, man­u­fac­tur­ing as a per­cent­age of GDP in Chi­na was 28 per cent, France nine per cent, Ger­many 19 per cent, and Japan 21 per cent.

Even though man­u­fac­tur­ing as a per­cent­age of US GDP sounds low, in ab­solute terms, the US is sec­ond on­ly to Chi­na. The rise of Chi­na has been a dif­fi­cult pill to swal­low as it has cre­at­ed a mul­ti­po­lar world with more than one su­per­pow­er.

For Trump, the tar­iff regime is a mul­ti­pur­pose “geoe­co­nom­ic” tool. First and fore­most, he in­tends to de­stroy the ex­ist­ing world trad­ing sys­tem as, in his view, it no longer serves US in­ter­ests. Sec­ond, to re­duce im­ports. Third, to force com­pa­nies to man­u­fac­ture in the US.

Fourth, to gen­er­ate rev­enue to fa­cil­i­tate the con­tin­u­a­tion of the tax breaks he en­gi­neered in 2017 and they have a sun­set clause which kicks in in 2025. Fifth, the tar­iffs are a ne­go­ti­at­ing tool to force all trad­ing part­ners to the ne­go­ti­at­ing ta­ble. In short, this is a pow­er play to re­tain world hege­mo­ny.

This ex­er­cise has made the world more un­pre­dictable, the prospect of a trade war much stronger, and a world re­ces­sion more prob­a­ble. Mak­ing Amer­i­ca great again means Amer­i­ca alone. Be­ing too de­pen­dent on any one part­ner is the same as de­pend­ing on­ly on nat­ur­al gas.

Mar­i­ano Browne is the Chief Ex­ec­u­tive Of­fi­cer of the UWI Arthur Lok Jack Glob­al School of Busi­ness