On March 31, aboard Air Force One, U.S. President Trump announced that his forthcoming "Liberation Day" policy on reciprocal tariffs, set to be unveiled on April 2, will apply to all countries trading with the United States. This comprehensive upgrade in trade policy surpasses previous market expectations that targeted only 10 to 15 major trade deficit countries and is viewed as a new phase in American protectionism, potentially heralding significant changes in the global trade system.
Trump's statement sharply contrasts with remarks made by his economic adviser Hassett last week. Hassett had told Fox Business that the tariff policy would focus on a few countries with trade deficits. However, within a week, the policy direction underwent a dramatic shift, drawing intense market attention and concern.
This "reciprocal tariff" policy is set to further build on the series of tariffs the U.S. has imposed since 2018 on imports such as steel, aluminum, automobiles, and Chinese goods. If fully enacted, the new policy could further elevate the prices of imported goods. According to estimates by JPMorgan, the policy could raise the U.S. core inflation rate by 1.5 to 2 percentage points, increasing the cost pressure on consumers.
In terms of implementation, the policy is designed as a "dual-track system": on one hand, the U.S. Trade Representative's office will scrutinize countries individually, crafting targeted countermeasure lists; on the other, it will establish an automatic reciprocal tariff mechanism to apply uniform tariff standards. This strategically balances political demands for a tough stance with some flexibility in execution.
As "Liberation Day" approaches, the key question externally is whether the policy will truly encompass all countries and whether exceptions akin to previous temporary exemptions for steel and aluminum tariffs will be included. U.S. stock markets may experience significant volatility following the policy announcement, with demand for safe-haven assets rising rapidly. The CBOE Volatility Index (VIX) futures have already shown signs of hedging sentiment.
The international community is highly wary of this aggressive policy. A trade official from a G20 country noted, "This is the most dangerous unilateral action since the establishment of the WTO system." As the global economy is at a critical stage of recovery from the pandemic shock, severe disruptions to global trade could have profound impacts on the recovery pace.
Meanwhile, the trend of funds moving to safe assets is strengthening. During the 2018-2019 U.S.-China trade war, gold prices rose by about 15% due to increased risk aversion. This broader and more stringent global tariff policy could push gold prices up again, becoming a focal point for short-term market attention.
The markets will closely watch the Trump administration's formal policy announcement on April 2 and the specific details of its implementation, which could have far-reaching impacts beyond traditional trade realms, influencing the direction of the global economic and financial landscape.
