Already liberated from Liberation Day?
On 2 April 2025, Donald Trump held his long-awaited “Liberation Day” and – with a cardboard chart to back him up – unveiled a range of exorbitant “reciprocal” trade tariffs on all his trading partners. Financial markets plunged in the wake of these announcements, which threatened to sweep away the global trading equilibrium. A month later and it is as if this episode never happened, if we are to judge from US equity markets – the S&P 500 has more or less wiped out all of its fall and the Nasdaq is even higher than its 2 April close.
The reason for this optimism in markets seems to ride on a single phase: “the worst is over”. There have, of course, been numerous about-turns from Donald Trump since Liberation Day. There has been a 90-day pause in “reciprocal” trade tariffs for all countries except China, a temporary exemption for electronic products and imports for the automotive industry, and, most importantly, the US administration has noticeably softened its stance on China, the only country still subject to “reciprocal” tariffs, which has responded blow for blow to US attacks. From this perspective, and whilst extreme caution is required when trying to predict geopolitical developments – especially with Donald Trump at the helm – it would appear that the escalation has peaked and is behind us.
For all that, and in contrast to the message being sent by markets, we are very far from the pre-2 April situation. Despite various pauses and exemptions, average tariffs on goods into the US are currently over 20%, versus 2.4% in 2024. Whilst Scott Bessent, US Treasury Secretary, is announcing hundreds of discussions between the US and its trading partners and, even if agreements-in-principle could be swifter, an Apollo Global Management report[1] reminds us that trading agreements take time – on average 18 months for trade agreements with the US in recent decades.
During this time, economic actors – corporates first and foremost – remain completely in the dark, which has very real and inevitable consequences. Reservations of cargo ships sailing between China and the US have collapsed 40% compared to last year. Despite large stocks built up as a precaution, major retail chains, such as Walmart and Target, see a major risk of shortages in the short term. Furthermore, as we can see from corporate surveys, confidence is in free fall. This is also the case among consumers, who are concerned about repercussions on both prices and employment, and have started to rein in discretionary spending, particularly on leisure items, as illustrated by the marked fall in restaurant visits.
So, whilst markets have bought into the end of escalation, we are nonetheless very far from a return to normal. On the one hand, not all assets have followed the trajectory of equity markets. The dollar is still clearly lower than before Liberation Day, and gold is much higher. On the other hand, even if Donald Trump pedals back on the main points of his announcements, real damage has already been done to the economy, and every day that passes with tariffs in place adds to this. The US President is keen on political experimentation and a “suck it and see” approach. However, he seems to have forgotten, as have markets, one key point – the economic fallout from erratic policies is harder to erase than a presidential decree.