In One Sentence

• President Donald Trump declared a base 10% tariff on all imports into the United States, with higher tariffs planned for 60 trading partners that have significant trade deficits with the U.S.
• Among these countries, 20% tariffs are to be imposed on the EU, 34% on Mainland China, 32% on Taiwan, 24% on Japan, 46% on Vietnam, and 25% on South Korea.
• Pharmaceutical companies breathed a sigh of relief after President Trump announced they would be excluded from reciprocal tariffs, sparing the sector from new trade penalties. 
• Other products, such as copper, semiconductors, lumber, certain critical minerals, and energy sources and products were also exempted from the tariff.
• The 25% auto tariffs on imported vehicles have begun to take effect, targeting cars not assembled in the U.S., with additional tariffs on auto parts like engines and transmissions due to take effect from May 3.
• Treasury Secretary Scott Bessent urged countries not to retaliate against U.S. tariffs, warning that such actions could trigger further escalation.

Mark the Essentials

• Tariffs are expected to significantly impact automobile companies with high import reliance—Volvo, Mazda, Volkswagen, and Hyundai are most at risk, while even U.S.-assembled vehicles contain 57% imported content leaving firms like GM particularly vulnerable due to high import rates and low domestic parts content.
• Despite being exempt from tariffs, uncertainty remains for the pharmaceutical sector as the Trump administration considers a Section 232 investigation that could lead to national and economic security-based import duties under the Trade Expansion Act of 1962. Section 232 investigations have already been announced for copper and lumber.
• Trump claimed that the new tariffs would generate over $1 trillion of revenue and reduce the national debt and offset income taxes but economists question this projection, noting that higher prices may curb consumer demand for goods.
• In response to U.S. tariffs, China’s Finance Ministry announced matching 34 percent tariffs on U.S. goods, while the Ministry of Commerce added 11 American firms to its “unreliable entities” list, restricting their business activities in China.
• The sweeping tariffs have drawn sharp criticism from U.S. allies and partners—burdening Vietnam, Taiwan, and Japan with tens of billions in surcharges—and have prompted European plans for retaliation. Meanwhile, China also sees a diplomatic opening, with Xi Jinping set to visit Southeast Asia to position China as a more stable and reliable trading partner.

Keeping an Eye On…

• Eight long decades after the Normandy landings, ‘Liberation Day’ has finally arrived – or so it seems for President Donald Trump and his minion, Peter Navarro. The core grievance of the duo is that the U.S. runs large and persistent bilateral trade deficits because the U.S.’ trade partners neither bind their tariff rates at the U.S.’ low levels or apply tariff rates on a reciprocal basis. To remedy this defect, elevated reciprocal duties are to be applied on these countries’ exports to foster genuine reciprocity. In truth, the additional duties imposed are not intended to etch reciprocity within these other countries’ tariff schedules; the worst offenders with the highest duties, such as India, are slated to pay lower additional tariffs compared to a lower tariff country, such as China or Vietnam. Rather, the additional duties are to be based on the size of their respective trade surpluses with the U.S., with the reciprocal tariff rate calculated using that country’s goods trade surplus with the U.S. divided by the total amount of goods exported by that country to the U.S. and then halving this figure to arrive at the final reciprocal tariff rate. The Trump administration’s reciprocal tariffs make a mockery of the most favored nation (MFN) principle and contravene multilateral trade law. Worse, the duties will not eliminate the U.S.’ goods trade deficits, given that the causes of these deficits range much beyond the level of foreign tariffs and are intimately connected with issues such as comparative advantage and domestic savings and consumption rates. A high tariff country like India, after all, continues to run a persistent goods trade deficit.

  The Trump administration’s reciprocal tariffs amount to a second unilateral ‘war of choice’ by America during the first quarter of the 21st century. Like its predecessor war in Iraq which doomed the political fate of America’s neoconservative cohort, the failure of this newest unilateral ‘war of choice’ will also reverberate within U.S. domestic politics for a long time to come. The international trading system will be poorer off too, given the sheer frivolousness of the Trump-Navarro action. In the last 100 years, the two great periods of U.S. tariff raises – the Smoot-Hawley tariffs in the early 1930s and the Nixon Shock of the early 1970s – were both precipitated by a breakdown of the international monetary order of the day, leading to structural misalignments in currency rates and ‘beggar thy neighbor’ charges of trade self-preferencing. This time around, the U.S. dollar is just marginally overvalued and the monetary order more or less undisturbed – conditions that are hardly suited to sparking a trade war. In any case, before the Trump-Navarro reciprocal tariffs become a permanent reality, they will likely have to pass legal muster at home. This is not a given. The tariffs cite the IEEPA and trace their emergency authority to deal with an “unusual and extraordinary threat” from the “War and National Defense” title of the U.S. Code. Whether longstanding trade deficits with all and sundry, including allies and partners, truly amounts to a national emergency or whether the measure, rather, amounts to an unlawful “claim to discover in a long-extant statute an unheralded power to regulate a significant portion of the American economy” remains to be seen. The tariffs will surely be tested first in domestic court – even if the WTO’s dispute settlement body is unable to issue a definitive verdict, given the lack of a quorum on its Appellate Body.

Expanded Reading

• These are the hardest-hit US trading partners under Trump’s tariffs, CNN, April 4, 2025
• Trump’s Trade War Escalates as China Retaliates With 34% Tariffs, The New York Times, April 4, 2025.
• Trump spares drugmakers from tariffs; costs could still go up, The Hill, April 4, 2025.
• Trump’s 25% auto tariffs are in effect. What investors need to know, CNBC, April 3, 2025.
• With Trump’s Tariffs, the Chasm Between Allies and the U.S. Widens, The New York Times, April 2, 2025.