Trump’s “Liberation Day” Tariffs: What Happened, What’s Next, and Why the World is Watching

Introduction: The Bold Trade Gamble

On April 2, 2025, former U.S. President Donald Trump, currently running for re-election, declared a bold new economic policy titled “Liberation Day.” It marked the announcement of a massive tariff plan that aimed to reshape the U.S. trade landscape and reduce America's dependence on foreign goods.

Here’s what he proposed:

·        A 10% universal tariff on all imports into the U.S.

·        Additional country-specific tariffs:

o   China: Up to 60% more, making total duties up to 145% on some goods

o   India: +27%

o   Japan, Germany, and others: Tariffs ranging from 11% to 50%

Trump framed this as a “second American Revolution”—claiming it would bring manufacturing back to U.S. soil, revive American jobs, and end what he calls “economic dependency” on China.

Immediate Reactions (April 2–4)

🌍 Global Financial Shock

The tariffs sent an instant shockwave through the world economy:

•     The U.S. stock market tanked, with the S&P 500 dropping nearly 5% in one day.
•     Global markets in Europe and Asia followed suit, fearing retaliatory tariffs and disrupted trade flows.

China Hits Back

• China wasted no time. Within 48 hours, Beijing announced:
•  125% retaliatory tariffs on American cars, agricultural goods, and semiconductors.
•  Suspended some ongoing trade dialogues and increased inspections on U.S. imports.

Sudden U-Turn: The 90-Day Pause (April 9–11)

With backlash intensifying, Treasury Secretary Scott Bessent urged Trump to cool things down.

His argument:

“We cannot fight 57 countries at once without hurting ourselves. Let’s prioritize.”

So what happened?

     Tariffs on all countries except China were paused for 90 days

       This pause is being used to:

o   Renegotiate trade deals (especially with allies like Japan, India, and Germany)

o   Calm U.S. manufacturers and markets

o   Avoid immediate inflation shocks

China remains the only country whose full tariff package is already active.

 

Why Trump Adopted Reciprocal Tariffs:

Trump’s move stems from his longstanding belief that the U.S. is treated unfairly in global trade. Key reasons include:

• Trade Imbalances: Many countries impose higher tariffs on U.S. goods than the U.S. imposes on theirs. For instance, India levies tariff up to 20% higher on 87% of imported goods compared to U.S. rates.
• Fairness Doctrine: Trump’s "eye-for-an-eye" approach ensures that countries imposing high duties on U.S. exports face equivalent tariffs on their imports into the U.S.
• Political Strategy: Aligning with his "America First" agenda, Trump aims to protect domestic industries while coercing trading partners into lowering their tariffs.

While this approach appeals to domestic manufacturers and voters, critics argue that it risks destabilizing global trade relationships.

 

The Trump administration's formula for calculating reciprocal tariffs involves a straightforward mathematical approach

 if the U.S. has a trade deficit of $295 billion with China and imports $440 billion worth of goods from China, the calculation would be as follows:

 

Impact on India’s Economy:

(India faces an additional 27% tariff on its exports to the U.S. The Indian government is currently assessing the impact and exploring diplomatic channels to address the issue.)

India is one of the most affected nations due to its significant trade relationship with the U.S., exporting goods worth $87.4 billion annually. Here’s a comparative analysis:

Challenges for India:

• Export Competitiveness: Indian exports like diamonds (India's largest export to the U.S.), textiles, and pharmaceuticals could face higher costs due to reciprocal tariffs ranging between 20-30%, reducing their competitiveness in the U.S.
• Inflationary Pressures: Higher tariffs may increase production costs for Indian exporters, which could trickle down to consumers.
• Retaliatory Measures: India may consider counter-tariffs or renegotiations to mitigate losses.

Indian Stock market:

The Indian stock market demonstrated resilience amid global volatility triggered by Trump's reciprocal tariffs. Despite initial declines in export-heavy sectors like textiles and pharmaceuticals, domestic-focused companies remained stable due to robust domestic demand. Here are some key data points:

• Domestic-Focused Sectors: Consumer goods and real estate saw stability, with some stocks rising by up to 10% due to strong domestic demand.
• Market Performance: The BSE Sensex dropped by 2.5% initially but recovered faster than global indices like the S&P 500, which fell by 5.97%, and the Shanghai Composite, which plummeted by 12.5%.
• Rupee Impact: The Indian rupee depreciated to 85.69 against the U.S. dollar amid market volatility.

India's market performed relatively better than global peers, with the government's efforts to diversify trade partnerships and boost domestic manufacturing being crucial for sustaining this resilience.

 

Sectoral Impact: A Tale of Two Sectors

India's stock market has been a mixed bag, with export-oriented industries feeling the pinch of global trade tensions while domestic-focused companies remain buoyant.

Export-Heavy Sectors: Challenges Ahead

• Textiles: India’s textile exports to the U.S. declined by 10% in the first quarter of 2025 due to higher tariffs, impacting sectoral performance.
• Stock Performance: Textile stocks saw a decline of 15% in the same period, reflecting investor concerns about reduced competitiveness.

• Pharmaceuticals: Although exempt from steep tariffs, pharmaceutical exports still face uncertainty, with a slight decline of 5% in the first quarter.
• Stock Performance: Pharmaceutical stocks experienced a modest decline of 8%, as investors remain cautious about future trade developments.

 

Key Global Market Impacts:

• China: The Shanghai Composite fell sharply by 12.5% as China faced cumulative tariffs exceeding 50%, coupled with retaliatory measures that could cost up to 2.4 percentage points in GDP growth.
• Trade Volume Impact: China’s exports to the U.S. declined by 23% in the first quarter of 2025.

• Europe: The pan-European Stoxx 600 index dropped by 2.6%, reflecting concerns over reduced trade volumes with the U.S.
• Automotive Sector: European car manufacturers saw a 15% decline in U.S.-bound exports.

• Japan: The Nikkei plunged nearly 8%, triggering trading curbs due to fears of supply chain disruptions.
• Electronics Exports: Japan’s electronics exports to the U.S. fell by 18% in the first quarter.

• Safe-Haven Assets: Gold prices surged to a record high of $3,150 per ounce as investors sought refuge from market volatility.

 

Global Trade Disruptions:

The tariffs have caused significant disruptions in international commerce:

1. Trade Volume Reductions: Global trade could shrink by 3% due to higher tariffs and retaliatory measures, according to a UN trade official1.
2. Shift in Export Flows: Exports are shifting from traditional markets like the U.S. and China to emerging economies such as India, Canada, and Brazil1.
3. Escalating Trade Wars: China and the EU have imposed counter-tariffs, escalated tensions and raising the likelihood of a global recession

 

Who Stands to Benefit?

While Trump's tariff strategy creates challenges, certain groups stand to gain:

Beneficiaries

1. U.S. Manufacturers: Higher import costs may drive demand for domestically produced goods.
2. Countries With Balanced Tariffs: Nations like Brazil or Singapore (already imposing reciprocal rates) may maintain stable trade relations with the U.S.
3. Alternative Export Hubs: Countries like Georgia are leveraging preferential agreements with Europe to bypass barriers created by reciprocal tariffs.

Opportunities for India:

• Diversification: India can strengthen trade ties with regions like Europe or ASEAN to reduce dependency on the U.S.
• Domestic Manufacturing Boost: Higher tariffs could incentivize Indian industries to focus on self-reliance and domestic consumption.
• Negotiation Leverage: India has already reduced tariffs on dozens of goods in anticipation of Trump’s move, signaling potential diplomatic opportunities.

Recommendations for India:

1. Enhance Domestic Production: Invest in infrastructure and technology to boost manufacturing capabilities.
2. Diversify Trade Partnerships: Strengthen ties with regions unaffected by U.S. tariffs.
3. Leverage Competitive Advantage: Maintain lower barriers compared to competitors facing higher U.S. tariffs.

India’s ability to navigate this complex landscape will determine whether it emerges stronger or suffers setbacks in the evolving global economy. 

Conclusion: A Double-Edged Sword

Trump’s reciprocal tariffs represent a bold attempt to reshape global trade dynamics but come with significant risks. For India, these policies pose challenges but also open doors for diversification and investment opportunities. Globally, the tariffs risk escalating trade wars and disrupting supply chains while benefiting nations that adapt quickly.

 

 Blog is written by Pranali Nankar and Vikash chaurasiya 

Reference :

• https://timesofindia.indiatimes.com/world/us/donald-trump-tariffs-news-live-updates-xi-jinging-reciprocal-tariffs-us-stock-market-china-canada-india-uk/liveblog/120222026.cms
• https://www.hindustantimes.com/world-news/china-will-now-pay-125-tariffs-trumps-latest-move-as-trade-war-continues-tariff-pause-us-market-news-101744221420897.html
• https://economictimes.indiatimes.com/markets/stocks/news/trump-tariffs-q4-earnings-fii-action-among-8-factors-that-could-move-d-street-this-week/articleshow/120247831.cms