Liberation Day: Trump and the resurgence of tariffs and protectionism

Liberation Day" has arrived, this "liberation day", which, rather than a specific day, is the entry into force of various tariffs on different countries and products.

Table of contents

1. Introduction: Another trade war?

2. Liberation Day tariffs

3. Reactions from different countries

4. Economic and market impact

5. Summary table

Introduction: Another trade war?

These, tariffs, are key to understanding Trump's policy and were already part of his first term's policies, when Donald Trump imposed a series of tariffs on China and other countries in order to protect U.S. protect U.S. industry. These measures triggered reciprocal tariff increases on the United States, resulting in a trade war.

This time, the same thing is happening as in the previous term: tariffs and retaliatory tariffs are being announced. retaliations are being announced on both sides, even more aggressively, and more countries are reportedly involved in this trade war than in the previous one.

Liberation Day tariffs

Trump has dubbed this tariff package as "Liberation Day", the day when the US "gets rid of unfair trade", these tariffs being a way to protect the United States. It is a way to stop other countries, especially China, the EU, Mexico and Canada, from taking commercial advantage of the US. commercially taking advantage of the United States. of the United States.

Liberation Day is defined as a form of U.S. protection against the unfair trade that had prevailed up to that time.

The tariffs that will go into effect are: tariffs of 10% on any imported product, regardless of the country of origin; a tariff of 34% on all Chinese products, reaching up to 50% on imports of some products related to AI technology and development; a tariff of 20% on all products imported from the European Union; and a tariff of 20% on all products imported from the European Union. imported from the European UnionA 25% tariff is also imposed on products imported from Mexico and Canada (countries with which Trump signed a free trade agreement during his previous term in office). In addition, a tariff of 25% has been imposed on all imported automobiles imported automobilesa 15% tariff on copper and an 18% tariff on lumber. All these tariffs have, for Trump, the same raison d'être: to defend U.S. industry and interests, which is the raison d'être of all tariff measures.

But it is true that this package has certain special features. First of all, and very typical of Trump's way of doing politics, we see tariffs announced with great fanfare, bringing out a panel (which calculated the average tariffs imposed on the United States by each country in a somewhat strange way), choosing a specific day with a specific story, seeking, at certain times, to confrontation with the countries countries on which the tariffs were imposed rather than appeasement. Another peculiarity, in addition to the staging, is the use of tariffs as a geostrategic bargaining chip. Historically, tariffs have been solely part of industrial and economic policy; while embargoes or other mechanisms were used to isolate countries on a trade level, the use of tariffs to force, for example, Europe to spend more on defense and stop moving closer to China, is something that was unheard of. And Trump is making intensive use of this tool to force the achievement of his geopolitical goals.

Reactions from different countries

As expected, the various countries affected by the tariffs have responded with retaliation. On the one hand we have the historic alliance between China, Japan and South Korea that have agreed to strengthen their trade ties, reducing dependence on the United States, in addition to which China has announced tariffs of 10% in some cases and 15% in others for agricultural products and has also initiated an investigation against Google for monopoly.

On the other hand, we have the preparation of measures by the European Union, which, although not yet announced, but has come to speculate tariffs between 10% and 50%, depending on the product and sector. In principle, it will punish more everything related to agriculture and technology.and technology.

Then there is the case of Mexico and Canadawhich have threatened retaliatory tariffs, but which have not materialized. As well as other countries such as India, Brazil, or Vietnam. These countries seem to be aiming to promote trade relations with other countries with more benevolent tariff policies.

Economic and market impact

Tariffs, although in the long term, and accompanied by an adequate industrial policy, can benefit the local industry, in the short term they tend to generate price increases. For example, if I import oil from Spain and now I have to pay 20% more for it 20% more expensiveI will have to raise its price until I find another supplier or keep it more expensive if I cannot find one. This causes inflation, both due to the increase in the price of the final goods and of the inputs used in production.

Another effect, which is particularly serious in the case of Mexico and Canada, is the distortion and increase in the cost of production chains. This is because the manufacturing processes between these three countries are highly integrated. It is common, for example, for a car chassis to be manufactured in Mexico, then assembled in the United States with steel mined in Canada. As a result, a car "made in the U.S." can make its way across the border. cross the border border up to seven times, which would mean paying a 25% tariff each time. This generates major distortions, especially since it is not easy to restructure these production chains overnight. The sectors most affected by this phenomenon are the automotive and technology sectors.

Production chains will be influenced by the new tariff model that the United States wants to impose.

In addition to these effects on the real economy, tariffs also have an impact on financial markets. On the one hand, problems arising from inflation and disruption in supply chains can reduce corporate profits, leading to falls in stock markets. On the other hand, rising inflation and the depreciation of the dollar (which has fallen 2% against the euro in the last five days) could prolong high interest rates, making access to financing more difficult. Added to this is the uncertainty generated by the way in which Trump has announced and implemented these tariffs, which has triggered fears of trade retaliation and the possible loss of markets for affected companies. As a result, most stock market indexes have fallen: the S&P 500 (United States) by 3.78 %, the EURO STOXX 50 (Europe) by 4.78 % and the MSCI World (global) by 3.2 %.

On the other hand, other relevant assets have reacted in different ways. The 10-year U.S. Treasury 10-year US Treasury bonds have seen their yields fall from 4.17% to 4.05%, reflecting an increase in demand (the higher the demand, the lower the interest they have to pay). Gold, on the other hand has fallen by 2.5%, possibly due to Trump's announcement.possibly due to Trump's announcement to exempt it from tariffs, which would increase its supply. Bitcoin has retreated by 2.24 % , probably due to fears that interest rates will remain high due to expected inflation, as well as general uncertainty. The dollar, as mentioned above, has fallen against the euro and most other currencies, probably due to the expectation of a reduction in demand for the greenback following the contraction of trade with the United States.

Conclusion: Are we facing a new world?

It is complicated to know whether we are facing a new era or not, but what is indisputable is that the changes in tariff policies and other measures adopted by Trump seem to point in that direction. We find ourselves in a world with redefined blocs, with a China closer to "Western" countries and, perhaps, with a more protectionist environment. What is clear is that these drastic changes and reversals generate equally drastic reactions, but, above all, they provoke uncertainty.

Uncertainty makes it difficult to foresee how events will unfold and raises many hard-to-answer questions: will the dollar lose its monetary hegemony with the decline in trade? Will the European Union and China form a new bloc? Will South Korea and Japan, historical enemies, move closer together to oppose the United States? Will Trump succeed in reviving U.S. industry? How will restrictions on the import and export of technology and rare earths affect the development of artificial intelligence? Will everything return to the pre-Trump era if the Democrats win the next election?

For now, these are unanswered questionsbut they will become clearer with time. What we know for sure is that today there is more uncertainty than yesterday, and tomorrow we cannot know if there will be more or less.

Summary table 

Introduction: Another trade war?	-The imposition of tariffs on China -Representations by both parties
Liberation Day tariffs	-The different types of tariffs -Special features of the tariffs
Reactions from different countries	-Announcement of measures by China -Plans on the part of the European Union
Economic and market impact	-Problems in the supply of caleñas Long-term consequences

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