President Donald Trump declared a national emergency and signed an extensive Executive Order on April 2, implementing sweeping “reciprocal tariffs” on nearly all imports entering the United States. 

The executive order establishes a 10% baseline tariff on all imports with significantly higher rates for specific countries running trade surpluses with the U.S. Markets reacted immediately with steep declines, while economists warn of potential price increases for American consumers, supply chain disruptions, and risks of retaliatory measures from trading partners that could further impact the global economy. 

The White House characterizes these measures as necessary to address what it calls “large and persistent annual U.S. goods trade deficits” that reached $1.2 trillion in 2024 and threatened national security.

The order cites the International Emergency Economic Powers Act, the National Emergencies Act, and the Trade Act of 1974 as legal authorities for these actions. Trump explicitly states that “large and persistent annual U.S. goods trade deficits constitute an unusual and extraordinary threat to the national security and economy of the United States”.

Implementation of these tariffs will be swift:

• The baseline 10% tariff takes effect at 12:01 a.m. EST on April 5, 2025
• Country-specific higher tariffs take effect at 12:01 a.m. EST on April 9, 2025
• Goods already in transit before these deadlines are exempt from the new tariff

While the baseline 10% tariff applies to all trading partners, many countries face significantly higher rates. The most affected nations include:

• Cambodia: 49% (highest rate)
• Laos: 48%
• Madagascar: 47%
• Vietnam: 46%
• China: 34%
• Taiwan: 32%
• India: 26%
• South Korea: 25%
• Japan: 24%
• European Union: 20%

The Executive Order includes special provisions for Canada and Mexico, acknowledging their status under the United States-Mexico-Canada Agreement (USMCA). Products qualifying as “originating” under USMCA rules are exempt from the new tariffs. However, non-USMCA compliant goods from these countries remain subject to tariffs under previous Executive Orders related to border security concerns.

Russia, Belarus, North Korea, Cuba, and Iran were also excluded from the tariffs. The White House justified these omissions by stating that existing sanctions already impose high economic penalties on these nations, making additional tariffs redundant.

The Executive Order notes that these country-specific rates are designed to match what the administration describes as “non-reciprocal tariff rates” other nations impose on American goods. During his Rose Garden announcement, Trump characterized the policy by saying, “Reciprocal means they do to us, we do it to them”.

The White House appears to have used flawed math in calculating the new “reciprocal tariffs, though. Analysts and economists have pointed out that the methodology employed by the administration is overly simplistic and does not accurately reflect actual tariff rates or trade barriers imposed by other nations.

Instead of calculating tariffs and non-tariff barriers imposed by trading partners, the administration reportedly used a crude formula:

1. Take the U.S. trade deficit with a specific country.
2. Divide that figure by the total value of goods imported from that country.
3. Halve the result to determine the “reciprocal tariff rate.”

For example, in the case of China:

• The U.S. had a $295 billion trade deficit with China in 2024.
• Total imports from China were $438 billion.
• Dividing $295 billion by $438 billion yields approximately 67%.
• Halving this figure results in a “reciprocal tariff” of 34%, which is now imposed on Chinese imports.

This same method was applied across all countries, even for those with minimal or no trade barriers against U.S. goods, such as Israel, which was assigned a 17% tariff despite having eliminated tariffs on American products.

Key Criticisms

1. Misrepresentation of Foreign Tariffs: The calculated rates do not correspond to actual tariffs or non-tariff barriers imposed by other nations. For instance, Vietnam was assigned a 46% tariff rate based on this formula, despite no evidence that Vietnam imposes such high barriers on U.S. goods.
2. Exclusion of Services Trade: The formula only considers trade deficits in goods and ignores services, where the U.S. typically runs significant surpluses. This omission skews the perceived trade imbalances.
3. Simplistic Assumptions: The methodology assumes that any trade deficit is solely caused by unfair trade practices, ignoring factors like comparative advantage, consumer preferences, and natural resource availability.
4. Errors in Presentation: Some countries with balanced trade relationships or even surpluses with the U.S., such as the United Kingdom, were still assigned tariffs under the baseline 10% rate due to the blanket application of the policy.

Product Exemptions and Special Provisions

Not all imports are subject to the new tariffs. The Executive Order specifically exempts several categories of products:

• Copper, gold, and certain critical minerals
• Pharmaceuticals and medical supplies
• Semiconductors and electronic components
• Lumber and wood products
• Energy and energy products, including oil and natural gas
• Products already subject to Section 232 tariffs (steel and aluminum)
• Products subject to Column 2 of the Harmonized Tariff Schedule

Americans can expect price increases on a wide range of products due to Trump’s new tariffs. Here are some key categories and items likely to become more expensive:

Electronics

• iPhones (potentially up to 42% price increase)
• iPads (42% increase)
• Apple Watches
• AirPods (39% increase)
• Mac computers
• TVs
• Laptops and computers

Automobiles

• Imported vehicles (additional $2,500 to $5,000 for lowest-cost American cars, up to $20,000 for some imported models)
• Cars with imported parts

Clothing and Accessories

• Apparel (prices expected to rise by 17% under all tariffs)
• Shoes

Food and Beverages

• Coffee (from countries like Vietnam, Brazil, and Colombia)
• Chocolate
• Fresh produce (prices expected to rise 4% from all 2025 tariffs)
• Bananas (from Guatemala)
• Avocados (from Mexico)
• Olive oil
• Sugar
• Rice
• Prepared soups
• Nuts

Alcoholic Beverages

• Italian and French wines
• Scottish whisky

Other Products

• Furniture
• Toys

The overall impact of these tariffs is expected to be significant, with economists predicting:

• A 2.3% increase in the overall price level from all 2025 tariffs
• An average per household consumer loss of $3,800 in 2024 dollars
• Annual losses of $1,700 for households at the bottom of the income distribution

It’s important to note that while some products like oil, gas, and pharmaceuticals are exempt from the tariffs, the broad nature of these measures means that almost all imported goods will face at least a 10% tariff, with many facing significantly higher rates.

U.S. Dollar and Stock Market React Sharply to Trump’s Tariff Announcement

The financial markets have experienced a tumultuous day following Trump’s announcement of sweeping tariffs on imports from over 60 countries. Both the value of the U.S. dollar and major stock indices have taken significant hits as investors grapple with the potential economic fallout of these measures.

Impact on the U.S. Dollar

The U.S. dollar, traditionally viewed as a safe-haven asset during periods of market uncertainty, has lost ground against major global currencies. The Dollar Index (DXY), which measures the greenback’s performance against six major currencies, fell below the 102.00 level, marking a decline of 2.1% for the day and nearly 4% for the year—its worst start since 2016.

Investors are shifting away from U.S. assets as fears of a recession grow, exacerbated by the inflationary pressures and reduced economic growth that tariffs are expected to create. Safe-haven currencies such as the Japanese yen and Swiss franc surged in response, with the yen appreciating by 1% against the dollar and the Swiss franc strengthening significantly. Meanwhile, the euro gained 0.43%, reflecting investor confidence in Europe’s measured approach to countering U.S. tariffs.

Stock Market Plunge

The U.S. stock market has been hit hard by fears surrounding the tariffs’ impact on corporate earnings, inflation, and economic growth. As of Thursday afternoon:

• The S&P 500 fell by more than 3.7%, putting it on track for its worst day since early 2022.
• The Dow Jones Industrial Average dropped approximately 1,300 points (3.1%), reflecting widespread investor concern across industries.
• The tech-heavy Nasdaq Composite plunged by 4.8%, marking its worst day since the pandemic began in 2020.

Retail stocks and companies heavily reliant on global supply chains were particularly affected. Nike shares fell by over 11%, while Apple dropped nearly 7% due to its reliance on Chinese manufacturing, which now faces a total tariff rate of 54%.

Economists warn that these tariffs could push inflation closer to 5% this year while reducing U.S. economic growth by up to two percentage points. 

Legal Basis for Trump’s Tariffs

Under the U.S. Constitution, the power to impose tariffs is explicitly granted to Congress in Article I, Section 8, which states that Congress has the authority “to lay and collect Taxes, Duties, Imposts and Excises” and “to regulate Commerce with foreign Nations.” However, over the past century, Congress has delegated significant portions of its tariff-setting authority to the executive branch through various statutes. This delegation has allowed presidents to impose tariffs under specific conditions, including national security concerns or economic emergencies.

Trump’s new tariffs rely heavily on the International Emergency Economic Powers Act (IEEPA) of 1977. This law allows the president to declare a national emergency and regulate imports if an “unusual and extraordinary threat” originating outside the United States exists. Trump declared such an emergency in February 2025, citing trade deficits and economic imbalances as threats to national security. By invoking IEEPA, Trump bypassed the need for congressional approval for these tariffs.

However, Trump’s reliance on IEEPA is unusual because this statute has rarely been used for tariff purposes, and its language does not explicitly mention tariffs or duties. 

Tariff Revenue Estimates and Allocation

White House trade adviser Peter Navarro has claimed that the tariffs could raise between $600 billion and $700 billion annually, totaling $6 trillion over the next decade. Economists are skeptical of these figures.Mark Zandi, chief economist at Moody’s said, “If you get to $100 billion to $200 billion, you’ll be pretty lucky.”

Economists from Yale Budget Lab estimate that a 20% universal tariff would generate only about $250 billion annually when accounting for economic repercussions, such as reduced trade volumes and retaliatory measures.

Trump’s First-Term Tariffs and Their Effects

During Trump’s first term, he imposed tariffs primarily targeting China, Canada, Mexico, and the European Union. These tariffs were designed to address trade imbalances and protect U.S. industries but resulted in significant economic disruptions.

China retaliated by imposing tariffs on U.S. agricultural exports like soybeans, pork, corn, and wheat. This retaliation cost American farmers an estimated $27 billion in lost agricultural exports. To mitigate these losses, the Trump administration provided $23 billion in bailout payments via the USDA’s Commodity Credit Corporation. Commodity prices fell as demand for U.S. crops declined, while input costs like fertilizer and equipment rose due to tariffs on imports. This created negative profit margins for many farmers.

The trade war reduced U.S. GDP by 0.2%, with a loss of approximately 142,000 full-time equivalent jobs.

Historical Examples: Tariffs Leading to Economic Downturns

The Smoot-Hawley Tariff Act of 1930 raised tariffs on over 20,000 imported goods by an average of 20%, triggering a global trade war. Retaliation from other countries caused international trade to decline by 66% between 1929 and 1934, deepening the Great Depression. The collapse of trade strained domestic industries reliant on exports and contributed to widespread unemployment and economic stagnation.

If trading partners retaliate fully against Trump’s sweeping tariffs (which raise the average tariff rate to nearly 20%, comparable to Smoot-Hawley levels), the U.S. could face a recession with GDP declining by up to 2% and unemployment rising to 7.5%.