Liberation Day: Market Implications Of Tariffs

According to Strategas Research Partners, the size of the contemplated tariffs to be announced on ... More Wednesday could bring the total to $300 billion, or 1% of U.S. GDP. (Photo by Justin Sullivan/Getty Images)
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While the economic data was a bit softer on the margin last week, markets were likely rattled more by concerns about the upcoming tariff announcements on President Trump’s “Liberation Day,” scheduled for Wednesday, April 2. Though the range of possible outcomes is extensive, the scope and size of the tariffs should be meaningful. Goldman Sachs estimates a five percentage point increase in tariffs trims 1-2% from S&P 500 earnings growth, so they have lowered their 2025 earnings per share growth estimate to 7%. Strategas Research Partners notes that the size of the contemplated tariffs could bring the total size to $300 billion, or 1% of U.S. GDP.
China, Canada, Mexico, and the European Union as a group account for almost 50% of imports in the U.S. Following COVID-19 and the last trade war, supply chains have made progress in diversifying away from China.
Share Of U.S. Imports: Last 12 Months
Glenview Trust, Bloomberg
While supply chains have reduced their dependence on China, it still has the largest trade surplus with the U.S., making it likely to remain subject to significant and possibly increased tariffs. Mexico and Canada also have large trade surpluses, so they are targets.
Notably, the U.S. has significant leverage with many large trading partners as their exports to the U.S. make up a large enough portion of their GDP. If sizable tariffs crimp their net exports to the U.S., as would be expected, their economic growth will suffer.
The European Union has a significant trade surplus with the U.S., so they are expected to be targeted when the administration proceeds with reciprocal tariffs this week. Reciprocal tariffs are meant to place U.S. tariffs equal to those experienced by U.S. goods imported into that region. If value-added taxes (VAT) are included in the reciprocal calculation by the administration, then the tariffs on the European Union will be significantly higher than if only their tariff rates are considered.
Selected Countries With Large Trade Surplus With The U.S.
Glenview Trust, Bloomberg