The stock market experienced a sharp sell-off on Thursday following President Donald Trump’s announcement of new tariffs on nearly every country in the world. In the days leading up to Trump’s “Liberation Day” speech, investors had hoped for moderation, but were stunned by the unprecedented protectionist scheme. Trump invoked emergency economic powers to unilaterally impose high tariffs on countries such as China, Vietnam, Bangladesh, the European Union, and Japan.
These rates are often much higher than what other countries impose on the US, setting the stage for potential retaliation and a trade war. While Trump’s capriciousness may have caught investors off guard, his attitude toward trade has been consistent for nearly 40 years. He believes that trade deficits are terrible and tariffs are great, and he hates feeling that the US is being “ripped off.”
The administration used a peculiar formula to calculate the supposed tariffs, simply dividing the US trade deficit with a country by its imports from that country.
Trump’s tariffs trigger market turmoil
This approach, which former Treasury Secretary Larry Summers compared to “creationism” in biology, reflects Trump’s view that trade deficits only exist due to trade barriers or manipulation. Under this model, the only way for a country to reduce its tariff rate and have Trump lower his new tariffs is to dramatically narrow the US trade deficit with it.
Lowering trade barriers alone won’t suffice, as evidenced by Israel, which eliminated all tariffs on US imports but still faced new tariffs from Trump. Trump’s ultimate goal is for the US to have no bilateral trade deficits, which he believes would prove that America is not being taken advantage of. However, this is an unrealistic and potentially disastrous aim, as it would force Americans to drastically reduce their purchases of various goods.
The president has been clear about his intentions all along, and now everyone will bear the consequences of believing otherwise. The stock market’s lack of foresight and willful blindness to Trump’s true nature and priorities have led to this point, and the repercussions are likely to be felt by all.
