What Really Happened After Trump's Tariffs

On April 9, 2025, President Donald Trump announced a 90-day pause on the sweeping tariffs introduced a week earlier, following outreach from over 75 countries and mounting financial volatility. He also implemented a reduced 10% reciprocal tariff, effective immediately, applying to all countries—including Mexico and Canada, but excluding China. Markets surged on the news: the Nasdaq rose over 10%, the S&P 500 gained 8%, and the Dow climbed 7%, marking their strongest single-day rallies in years. Despite the pause, several major tariffs remain in force. A 25% levy on autos, auto parts, steel, and aluminum continues, and the 25% tariff on non-compliant United States-Mexico-Canada Agreement imports from Mexico and Canada remains unchanged. Here’s how the past week unfolded, starting from the announcement of the original reciprocal tariff plan.

On April 2, 2025, President Donald Trump set off shockwaves through global markets by launching one of the most aggressive tariff agendas in modern history. Labeled “Liberation Day”, this sweeping tariff policy introduced a 10% baseline duty on all imports into the United States, along with targeted increases of up to 54% for some of America's largest trading partners. Countries like China, the European Union, Japan, South Korea, Vietnam, and others were hit hard. China alone now faces a cumulative 60%+ tariff burden, including the most recent 34% reciprocal tariff increase. Trump’s administration justified the move on multiple fronts: national security, economic independence, and renegotiating trade deals perceived to be unfair. But the strategy has also plunged global markets into volatility, with some experts warning of a looming recession and stagflation.

Source: India Today

Volatility, Sell-offs, and Shockwaves

The markets responded with sheer panic. On the day of Trump’s announcement:

• S&P 500 fell 5%, the biggest single-day drop since the 2020 pandemic.
• Dow Jones tumbled 4%, and the Nasdaq lost nearly 6%.
• Companies like Apple and Nike, heavily reliant on global supply chains, saw shares fall 9% and 14% respectively.
• Private equity firms such as KKR and Blackstone plummeted more than 10-15%.
• Affirm and Robinhood, key fintech firms, lost 17–21% of their value.

Even billionaire investors like Bill Ackman, who once hailed Trump as “pro-growth,” have seen their portfolios hit. In contrast, Warren Buffett’s Berkshire Hathaway, with reduced exposure to equities, barely budged, underscoring the advantage of conservative positioning in a volatile environment.

Global Reactions and Retaliatory Tariffs

The announcement of U.S. tariffs prompted swift responses from affected countries, leading to the imposition of reciprocal tariffs:

• China: In retaliation, China announced a 34% tariff on all U.S. imports, effective April 10, 2025. Additionally, China imposed export controls on rare earth materials critical for high-tech industries.
• European Union: The EU expressed strong opposition to the U.S. tariffs and indicated plans to implement countermeasures targeting key American exports. EU officials warned that these actions could escalate into a broader trade conflict, potentially harming both economies. 
• India: While India faces increased tariffs under the new U.S. plan, some analysts suggest that certain Indian sectors, such as textiles and electronics, might gain competitive advantages as companies seek alternatives to Chinese suppliers.

These countermeasures increase the risk of a globally synchronized trade slowdown. China’s Ministry of Commerce declared it would “fight to the end,” while EU Commission President Ursula von der Leyen called for a “responsible” path forward through multilateral talks. Vietnam and other ASEAN nations are capitalizing on redirected supply chains, with Samsung, Intel, and Apple suppliers expanding operations there. Latin America and Africa, historically overlooked, are gaining new economic attention from both Washington and Beijing as geopolitical competition over raw materials and logistics intensifies.

Inflation, Recession Fears, and the Fed's Dilemma

• Inflation Spike: JP Morgan now predicts the tariffs will add nearly 2% to the Consumer Price Index (CPI) in 2025. Already at 2.8% YoY as of February, inflation may soar closer to 5%, reigniting pressures on everyday U.S. consumers.
• Recession Odds Jump: The same analysts raised the likelihood of a U.S. and global recession by year-end to 60%, up from 40%. As tariffs drive up prices and provoke retaliation, demand may shrink, supply chains stall, and export markets contract.
• Stagflation Alert: The IMF and leading economists warn the world could face stagflation: stagnant growth combined with high inflation, a toxic economic cocktail that’s hard to unwind.

The Federal Reserve is now caught in a policy paradox. Traditional tools like interest rate hikes aren’t effective when inflation stems from tariffs rather than excess demand. This stagflationary squeeze puts Jerome Powell in an unenviable position: raise rates and risk killing growth or hold steady and watch inflation soar. Economists warn this could lead to a stagflationary spiral, sluggish growth coupled with persistent inflation.

Tariffs and State-Level Indirect Taxes

While federal tariffs dominate headlines, state indirect taxes, especially sales and use tax obligations, are now a critical battleground. Businesses that import goods and act as the “importer of record” are responsible for paying tariffs to U.S. Customs and Border Protection (CBP). However, states like California determine use tax based on the sales price, and tariffs paid directly by the purchaser aren’t included in that calculation.

Hypothetical Example:

A company buys $25M in manufacturing equipment from China, paying a 54% tariff ($13.5M). Under California rules:

• Use tax is owed only on the $25M (not $38.5M), assuming the tariff isn’t bundled into the seller’s invoice.
• Mistakenly including the tariff could result in millions in overpaid tax.

Key State Rulings:

• California, South Carolina, Washington, and others have ruled that tariffs paid by the buyer (not passed on by the seller) are not part of the taxable base.
• But when sellers itemize tariffs on invoices to customers, they can become taxable, especially in resale situations.

Tax professionals must carefully determine who pays the tariff and when to avoid costly overpayments or audit flags.

The Economic Mechanics of Tariffs

Tariffs are not just trade tools—they are economic levers that impact inflation, revenue, and production. At their core, tariffs:

Raise revenue for the imposing government, shared by producers and consumers. Reduce global production efficiency. Are stagflationary—deflationary for the exporter, inflationary for the importer. Make domestic producers more competitive (and potentially less efficient). Serve strategic purposes during geopolitical tensions. Can reduce trade and capital account imbalances.

However, the downstream effects—the second-order consequences—are driven by reactions in monetary policy, exchange rates, and retaliatory measures. Eased monetary policy in deflation-hit regions and tightened policy in inflation-prone countries can neutralize tariff impacts. Likewise, fiscal adjustments and currency shifts can offset or intensify consequences. Tariffs can lead to broad-based stagflation if met with reciprocal action, affecting global supply chains and risk appetite.

How This Tariff Agenda Differs from History

President Trump has invoked the Smoot-Hawley Act of 1930 as a historical justification for protectionist policies. However, economists argue the comparison is flawed. Back then, global trade made up just 1.3% of U.S. GDP. Today, that number is closer to 15%, with deeply integrated supply chains that make modern economies far more interdependent. Even the Fordney-McCumber Act of 1922 and Britain’s 1932 general tariff pale in comparison to the scope and scale of Trump’s current agenda. Experts such as Joao Gomes of Wharton and Brett House of Columbia University argue this is not about classical protectionism—but about redefining geopolitical leverage.

According to the House, Trump’s real strategy is to divide and negotiate, using varying tariffs across countries as a way to force bilateral deals and eliminate multilateral resistance. "It’s the playbook of a power broker who thrives on imbalance," House said.

The Broader Impact on the U.S. Economy

Multinational firms like GM, Ford, Stellantis, and tech hardware companies have begun shifting operations to offset tariff pain, some increasing domestic production, and others pausing projects in Mexico or Canada. While Trump aims to re-shore manufacturing, economists argue the complexity of modern supply chains makes this vision costly and inefficient. Many intermediate goods are not easily replaced domestically, and building new capacity takes years.

Industries heavily reliant on international supply chains, such as technology and automotive sectors, face increased production costs. Companies like Apple and Nike anticipate significant impacts due to their dependence on imported components and materials. Ignored in tariff rhetoric is the U.S. service sector, which makes up two-thirds of GDP. Experts worry retaliatory tariffs could now expand into services, especially tourism, education, and tech licensing, hurting small U.S. businesses disproportionately.

The Forgotten Service Sector

While the tariff agenda centers on physical goods and trade deficits, it neglects the massive role played by U.S. services. America is the world’s largest services exporter, and disruptions to foreign travel, financial consulting, higher education, and tech services may cause indirect damage. According to Harvard’s Ebehi Iyoha, the downstream effects of diminished spending or access to U.S. services abroad could be “highly detrimental” to small and medium businesses that rely on global clientele. She warns that policy discussions must widen to incorporate services as equally vulnerable to retaliatory action.

Currency Dynamics and Central Bank Responses

Tariffs also influence exchange rates and monetary policy. As inflation rises in the U.S., the Federal Reserve may delay rate cuts, keeping interest rates higher for longer. In contrast, China’s central bank could ease policy to counteract export deflation. Currency wars may follow, with the dollar remaining strong and the Chinese Yuan potentially appreciating as part of negotiations. Any currency manipulation to offset tariffs will introduce new volatility into capital markets.

Source: genuineimpact

Since Trump's April 2 tariff rollout, the U.S. dollar has unexpectedly weakened — with the Dollar Index falling from near 110 to around 102. Instead of acting as a haven, the greenback is slipping, compounding inflation as imported goods become even costlier. Analysts warn that this unusual currency slide could further strain household budgets and accelerate global de-dollarization efforts.

The World Catches Tariffs

Trump’s tariff shockwave didn’t stop at U.S. borders, it triggered a global economic chain reaction. Here’s how the world is wobbling:

• Global Growth Slows: The World Bank projects a 0.7% drop in global GDP as supply chains stall and trade friction rises.
• Export Economies Sweat: Germany, South Korea, and Taiwan face downturns as their export engines lose steam.
• Winners & Whiplash in Emerging Markets: Vietnam and Mexico gain from supply chain shifts, but inflation and FX volatility bite in others.
• Commodities on a Rollercoaster: Metal prices spike (hello, copper and aluminum), while agriculture exports reroute around U.S. retaliation.
• From Globalization to Go-It-Alone: The WTO’s sidelined, regional blocs rise, and a new age of economic tribalism looms.

China in the Crosshairs

On April 9, 2025, the United States imposed a 125% tariff on Chinese imports, signaling a sharp escalation in trade tensions. The move followed China’s retaliatory 84% tariff on U.S. goods and underscored the ongoing lack of formal negotiations between the two nations. While most countries were granted temporary relief through a 90-day tariff pause, China was notably excluded—deepening uncertainty for global businesses and investors navigating the fractured relationship between the world’s two largest economies. Trade analysts now anticipate a shift in U.S. policy from broad-based tariffs to more targeted, sector-specific duties, potentially offering industries greater clarity and flexibility. The coming weeks will be critical as companies and markets adjust to this fast-evolving trade landscape.

Trump’s Endgame

According to his Treasury Secretary Scott Bessent, the tariff plan seeks to bolster U.S. industrial capacity, fund domestic investment, and reduce dependence on foreign supply chains. National security, trade deficits, and reviving blue-collar jobs are the stated goals. But a growing number of analysts suspect a more strategic motive. Some speculate that Trump is engineering a J-curve reset, a short-term dip to crush inflation, weaken the dollar, and eventually stabilize the economy for future growth.

Kevin Ford, macro strategist at Convera, sees signs of this in Trump’s messaging shift. “They’re no longer celebrating the S&P 500. They’re watching 10-year yields and debt markets,” he noted. “If deflating asset bubbles is the price for long-term control, this administration seems ready to pay it.”

The Gamble of Protectionism

Trump’s sweeping tariff measures have reignited debates about the balance between protectionism and global cooperation. With inflation rising, recession risks looming, and trade partners retaliating, the stakes are enormous. While the policy may yield some domestic advantages, its ripple effects, from Wall Street to Main Street to global supply chains, are still unfolding. Whether this aggressive tariff gamble leads to renewed economic power or global isolation will depend on the administration’s ability to manage diplomacy, monetary pressures, and the trust of both markets and voters. In the meantime, the world watches, and braces, for the next move.