What is Donald Trump’s ‘liberation day’ for trade?

Donald Trump has spent his first months in the White House railing against the US’s largest trading partners, accusing them of cheating America and taking advantage of the world’s largest economy.

“For DECADES we have been ripped off and abused by every nation in the World, both friend and foe. Now it is finally time for the Good Ol’ USA to get some of that MONEY, and RESPECT, BACK. GOD BLESS AMERICA!!!” the president wrote on social media this month.

Trump has declared that April 2 will be “Liberation Day”, when he plans a sweeping escalation of his trade policy, potentially hitting the US’s largest trading partners with steep tariffs as he upends decades of global trading norms.

What will Trump do on “Liberation Day”?

There are three main elements — and a lot of uncertainty.

Firstly, the reports will land. On inauguration day, Trump followed up his election campaign pledges for immediate tariffs on all US imports by ordering a series of investigations into the country’s trading relationships. These studies will be returned to him on April 1.

The second element is the centrepiece on April 2: the expected announcement of so-called reciprocal tariffs. These are supposed to counter what his administration views as unbalanced trade relationships and unfair taxes, subsidies and regulations.

In parallel, the White House is looking at a whole host of sectoral levies to unveil on that date. Trump somewhat jumped the gun on Wednesday by setting out 25 per cent tariffs on cars.

The president has said other tariffs may follow on chips and pharmaceuticals, but has also signalled that those would be announced at a later date. It has all added to the unpredictability that has been a hallmark of his leadership.

April 2 is also the day Trump has suggested tariffs of 25 per cent on all imports from Canada and Mexico will reapply. Earlier this month, he offered a temporary exemption from those levies to goods complying with the terms of the 2020 trade deal between the three countries.

What does Trump mean by a reciprocal tariff?

The Trump administration has said it wants to impose tariffs on a “country by country” basis, hitting any trading partners that have higher levies on the US than it imposes back.

What makes this more novel is the US saying it will also retaliate against trading partners with so-called non-tariff trade barriers, such as rules, regulations, subsidies or taxes.

US officials have repeatedly singled out the EU’s value added tax as an example of an unfair trade practice. Digital services taxes are also under attack from Trump officials who say they discriminate against US companies.

Trade experts say it is notoriously difficult and time-consuming to calculate a specific tariff rate to counter another country’s taxes or regulations.

Lori Wallach, director of the think-tank Rethink Trade, said the US balancing trade with its partners “could mean some logical combination of sectoral tariffs applying to all countries for particular goods the US thinks are important, and some application of country-specific tariffs on countries that have the highest chronic surpluses in their global trade”.

How will the measures be applied?

If Trump were to apply immediate tariffs to trading partners on Wednesday, he would need to use emergency powers, instead of the trade measures he has relied on previously to impose levies following months of investigation.

These measures could include the US’s International Emergency Economic Powers Act, or a little-known trade law, Section 338 of the Tariff Act of 1930, to potentially apply tariffs of up to 50 per cent.

Trade lawyers say tariffs applied under emergency powers could kick in immediately. “If he does it under IEEPA, I think our experience from the Mexico and Canada and China tariffs says it could happen almost instantaneously,” said Lynn Fischer Fox, a partner at Arnold & Porter and former US trade official.

What tariffs has Trump already imposed?

Trump has already imposed additional tariffs on all imports from China of 20 per cent, and levies of 25 per cent on all US imports of steel and aluminium — plus a large list of products made with those metals.

Earlier this month, he initially imposed tariffs of 25 per cent on all imports from Mexico and Canada in what he said was a drive to force them to reduce illegal immigration across their borders and stem the flow of the deadly opioid fentanyl.

Hours later, the president softened the tariffs by offering a temporary exemption for goods that comply with the terms of the 2020 North American trade deal between the three countries.

On March 24 Trump also signed an executive order issuing unprecedented “secondary tariffs” on all countries that buy any oil and gas from Venezuela, taking effect on April 2. Those tariffs will apply for one year after a country’s most recent purchase of fuel from Venezuela, unless senior US officials waive them earlier than that.

Most trade experts expect the various tariffs placed on US trading partners to be cumulative. For example, China would potentially face the 20 per cent tariff on all imports, in addition to a 25 per cent levy in response to its purchases of Venezuelan oil, to give its imports an overall 45 per cent duty. The reciprocal tariff could be added on top.

Trump has opened trade investigations that could use national security grounds to apply tariffs to copper and lumber. The so-called Section 232 investigations were successfully used to apply levies to steel and aluminium by Trump in 2018, and recently again on cars this month.

How might affected countries respond?

Under the last Trump administration, US trading partners retaliated with their own levies on US goods, escalating a trade war.

Typically the targets are goods that are important to Republican lawmakers, who might then think twice about the president’s aggressive trade policy.

This time around, some US trading partners are following the same playbook. The EU has said it would counter US steel and aluminium tariffs with its own duties affecting up to $28bn of assorted American goods. If approved by EU member states, these are set to take effect on April 12.

China has also put tariffs on $22bn of US agricultural exports, targeting Trump’s rural base with new duties of 10 per cent on soyabeans, pork, beef and seafood. Cotton, chicken and corn face additional 15 per cent levies.

Canada applied tariffs to about $21bn of US goods ranging from alcohol to peanut butter in early March. That was followed by another tranche of around $21bn on US steel and aluminium products among other items.

Several countries — including Mexico and the UK — have so far not responded. The UK has opted to try to negotiate a trade deal rather than inflaming relations with the president.

Stephen Moore, visiting fellow in economics at the rightwing Heritage Foundation, said retaliating against the US was “exactly the wrong response” from its trading partners. “It’s so counter-productive, and all that’s doing is further agitating Trump,” Moore said.

Which countries are most at risk?

The extent of the reciprocal tariffs remains unclear. Last month, US officials indicated that Japan, India, the EU and Brazil would be the biggest targets.

However, when asking American exporters to file complaints about their trading partners, the US Trade Representative’s office said it was interested in all G20 countries, plus countries that have “the largest trade deficits in goods with the United States”.

Its list included Argentina, Australia, Brazil, Canada, China, the EU, India, Indonesia, Japan, Korea, Malaysia, Mexico, Russia, Saudi Arabia, South Africa, Switzerland, Taiwan, Thailand, Turkey, the UK and Vietnam.

Will it be inflationary?

Federal Reserve officials are on guard for signs that the tariffs will trigger broad and persistent inflationary pressures.

Previous rounds of trade levies, imposed during Trump’s first term, did not have a persistent impact on prices, but rate-setters are acutely aware that this time may be different.

Not only are the current round of tariffs potentially much more disruptive, they also come at a time when businesses and households are still struggling to recover from the worst bout of US inflation since the 1980s.

Additional reporting by Claire Jones in London; data visualisation by Alan Smith and Ray Douglas