Liberation Day or Recession Day? How Trump's Policies Sparked a Full-Scale Trade War

No sooner had US President Donald Trump announced his second round of tariff war, which he described as a declaration of economic independence for the United States and a ‘Liberation day’ for it, than angry reactions erupted from various countries around the world, most notably China, Canada, and the European Union.

To implement his economic vision to pull the US economy out of the state of emergency, he imposed tariffs in two rounds. The first included a few countries, such as Canada, Mexico, and China, while the second hit dozens of countries, imposing tariffs ranging from 10% to 49%.

He also announced that his country would hold accountable countries that treat it unfairly, demanding that foreign leaders cancel their tariffs in exchange for any possible easing of US restrictions.

Economists warned that Trump's massive tariffs would raise prices domestically and internationally and harm the global economy, suggesting greater cooperation between China and Europe at the expense of the United States.

Trump's measures were not welcomed by his rivals, with House Democratic Leader Kim Jeffries saying “Republicans are crashing the American economy and driving us to a recession. This is not Liberation Day, it’s Recession Day.”

Escalatory Step

US President Donald Trump announced on April 2 a 10% tariff on all imports into the United States, marking what he described as ‘Liberation Day’ for the US economy.

But for America's trading partners, this day will mark the end of the era of global trade, after Trump raised tariffs to levels not seen since the passage of the Smoot-Hawley Act during the Great Recession.

Trump decided to impose higher tariffs on approximately 60 countries or trading blocs, an escalatory step aimed at protecting the US economy and promoting growth, but one that could ignite a global trade war, severely harming many of the United States' major trading partners.

China will be subject to a 34% tariff, in addition to the existing 20% tariff on all Chinese imports into the United States. 

A 20% tariff is imposed on products from the European Union, a 10% tariff on British products, and a 25% tariff on imported cars.

In turn, US Treasury Secretary Scott Bessent warned countries worldwide against responding to Trump's tariffs, under the threat of escalation.

US media outlets described Trump's decision to impose tariffs as one of the biggest and most dangerous economic adventures in the history of the US presidency.

According to Axios, Trump acted against the advice of most business leaders, many economists, and even some Republican officials.

In his speech during the celebration, Trump indicated that it was time to prosper again and that America's golden age would return with great force.

He said American workers and manufacturers have been harmed for decades by free trade agreements, which reduced restrictions on global trade and boosted the growth of a $3 trillion US market for imported goods.

The Trump administration estimates that this policy could raise federal revenues by about $700 billion annually and create new jobs in industries that have been relocated abroad.

The significant increase in imports coincided with what Trump sees as a glaring downside: the large trade imbalance between the U.S. and the world, with a goods trade deficit exceeding $1.2 trillion.

Economic warnings were swift, with the U.S. Chamber of Commerce describing the move as a sweeping tax on American consumers, threatening sharp price increases and an economic recession.

JPMorgan Chase raised its estimate of the probability of a global recession from 40% to 60%, warning that sustained implementation could push both the U.S. and global economies into recession within the year.

The Yale Budget Lab projected that these tariffs would increase taxes on American consumers by approximately $660 billion annually. 

The average U.S. household is expected to pay $3,000 more per year, with lower-income families shouldering a disproportionately large share of the burden.

In a related development, Trump outlined three conditions for lifting tariffs on any country, adding: “Any leader who calls me to negotiate tariffs, I will ask them to buy American products, lift trade restrictions, and not manipulate their country's exchange rate.”

Bloomberg estimated that US stocks suffered massive losses of approximately $2 trillion in the first trading session following the tariff announcement, while the US dollar fell by 1.5%.

This sharp decline was driven by investor concerns about escalating trade tensions and their negative impact on the global economy, which prompted widespread selling in US stock markets.

It's worth noting that when Trump first took office in January 2017, the weighted average tariff on US-imported goods was about 1.5%.

After the new tariffs were implemented on April 9, and including other measures, this figure will rise to about 21%, the highest figure in more than a century, according to Fitch Ratings.

Dire Consequences

Following Trump's announcement of his new tariffs, statements and reactions from leaders, officials, experts, and economists around the world poured in, condemning the move, which raised fears of dire consequences for the global economy.

European Commission President Ursula von der Leyen described the incident as a severe blow to the global economy, stressing the EU’s readiness to respond with countermeasures if negotiations fail.

French President Emmanuel Macron called on EU companies to halt their investments in the U.S.

He also raised the possibility of using the EU's anti-dumping tool to target US digital services, as well as US economic financing mechanisms.

French government spokeswoman Sophie Primas said the European Union is preparing for a trade war with the United States and will impose a tax on US digital services, expressing particular concern about the significant impact on the wine and spirits sector.

German government spokesman Steffen Hebestreit said the costs of a trade war are not borne by one party alone, but could be extremely costly for both sides.

For her part, Italian Prime Minister Giorgia Meloni described Trump's tariffs as a bad move, warning that a trade war would only weaken the West.

Spanish Prime Minister Pedro Sanchez affirmed that his country would protect its companies and workers and would continue its commitment to a world without trade restrictions.

Danish Foreign Minister Lars Lokke Rasmussen said, “I cannot understand that the United States wants to wage a trade war against Europe. No one will win, everyone will lose. Europe will provide firm and proportionate responses.”

British Trade Secretary Jonathan Reynolds also announced that the UK remains committed to reaching an agreement with the U.S. to mitigate the impact of the new US tariffs, stressing that London does not intend to take immediate retaliatory measures.

Irish Prime Minister Micheal Martin said, “My priority, and that of the government, is to protect Irish jobs and the Irish economy. We will work with the EU to engage in negotiations with the U.S. to mitigate the damage caused by these tariffs.”

Australian Prime Minister Anthony Albanese warned that Trump’s decision will increase uncertainty in the international economy and raise the cost of living for American families.

Japan warned that Trump’s new tariffs could violate World Trade Organization rules and the trade agreement between the two countries.

South Korean Acting President Han Duck-soo expressed regret that a global tariff war has become a reality, pledging to use all government resources to overcome the trade crisis.

Trade War

While most world leaders have called for dialogue with the United States to find a way out of the new impasse, others have taken defensive measures, including retaliatory tariffs and filing a lawsuit with China at the World Trade Organization.

China's official Xinhua News Agency announced that Beijing will impose a 34% tariff on all US imports, effective April 10.

The Chinese Ministry of Finance also decided to impose export restrictions on some rare earth materials, which are used in high-tech products such as computer chips and electric car batteries.

The Chinese government also announced that it will add 27 US companies to its list of companies subject to trade sanctions or export controls.

It also announced that it has filed a lawsuit with the World Trade Organization regarding the tariffs.

With Trump's announcement of a similar 34% tariff on Chinese goods, the total US tariff on imports from China rises to 54%, compared to the previous 20% tariff.

On his part, Trump later confirmed that he would be willing to ease the tariffs imposed on China if Beijing approved ByteDance's TikTok in the U.S.

In a related development, the Canadian government announced that it would retaliate by emulating the US approach by imposing a 25% tariff on all cars imported from the U.S. that are not compliant with the Canada-United States-Mexico Agreement (CUSMA), using the Canadian abbreviation for USMCA.

The Brazilian parliament passed a law authorizing the government to take measures to respond to any trade restrictions that hinder the country's exports.

Luiz Inacio Lula da Silva’s government said it regretted the decision and confirmed that it was evaluating all possible measures to ensure reciprocity in bilateral trade, including recourse to the World Trade Organization.

In turn, economic analyst Ahmed Najjar told Al-Estiklal that “Trump's strategy is not limited to imposing protectionist tariffs, but rather a major strategic plan aimed at restructuring the global trading system in Washington's favor.”

“By collecting customs revenues, Trump is creating financial and political leverage, while the next steps may include dismantling international blocs, undermining dollar reserves, drying up European investments, and increasing American arms sales,” he added.

Mr. Najjar concluded that “what is being promoted as 'Liberation Day' is reminiscent of another chapter in America's traumatic history, specifically the 'Nixon Shock' of 1971, which left behind a legacy of recession and inflation.”