President Donald Trump is expected to announce sweeping new trade tariffs Wednesday afternoon, calling it “Liberation Day” — a symbolic push to tackle the ballooning U.S. trade deficit with major global partners.
Early reports suggest the new reciprocal tariffs could reach as high as 20% on a wide spectrum of imported goods. If confirmed, such measures would raise average U.S. tariffs to levels unseen in decades, stoking uncertainty across global supply chains and financial markets.
Trump is set to reveal more details during his scheduled address from the White House at 4 p.m. Wednesday.
Markets will be watching closely, not just for the scope and scale of tariffs, but also for potential signals on diplomatic retaliation, corporate lobbying reactions, and the Fed’s response.
A Historic Deficit Fuels Protectionist Moves
In 2024, the U.S. imported $3.3 trillion in goods and exported only $2.06 trillion, resulting in a trade deficit exceeding $1.2 trillion, according to data from the International Trade Centre.
January and February 2025 marked the two largest monthly goods deficits ever recorded — $156 billion and $148 billion, respectively, hinting that U.S. businesses may have frontloaded imports in anticipation of higher future costs.
Top trading sources of U.S. imports include Mexico at $510 billion, China at $462 billion, and Canada $422 billion. Imports from Germany totaled $163 billion, predominantly in the automotive sector, while the European Union as a whole supplied $687 billion worth of goods.
Among product categories, automobiles top the list at $219 billion, followed by crude oil and petroleum at $174 billion.
Auto Industry In the Crosshairs
Trump has already enforced a 25% tariff on all foreign car imports. If an additional 20% reciprocal duty is introduced, foreign vehicles could face a combined 45% import tax.
Analysts warn this could trigger a severe contraction in U.S. auto sales. Price tags on new vehicles may surge by as much as $15,000, dealing a blow to consumer demand and profit margins of major automakers.
Goldman Sachs cautioned that if energy products are included in the tariff package, oil and refined product prices including gasoline and diesel could spike sharply, adding to inflationary pressures.
Wall Street Reacts: Correction And Caution
Equity markets are already flashing red. The S&P 500 — as tracked by the SPDR S&P 500 ETF Trust SPY — entered correction territory last month, down over 10% from recent highs, and closed its worst quarter since 2022 with a 4.6% loss.
The so-called “Magnificent Seven” — Microsoft Corp. MSFT, Apple Inc. AAPL, NVIDIA Corp. NVDA, Alphabet Inc. GOOGGOOGL, Amazon.com Inc. AMZN, Meta Platforms Inc. META, and Tesla Inc. TSLA — have all posted negative year-to-date returns and are underperforming the broader market.
Read Also: Trump’s ‘Liberation Day’ Creates ‘Major Uncertainty’ For Big Tech, Analyst Dan Ives Says
Notably, bullish strategist Ed Yardeni revised his S&P 500 earnings forecasts downward and cut his year-end index target, citing risks from trade policy and slowing global demand.
Amid equity outflows, gold has solidified its status as a safe-haven asset, repeatedly hitting record highs and surging 19% year to date as investors seek shelter from mounting uncertainty.
A scenario involving stronger-than-expected retaliatory measures from key trading partners could amplify the market dynamics seen in the first quarter, deepening volatility and risk-off sentiment.
Also Read: Goldman Sachs Slashes S&P 500 Price Outlook As Tariffs, Weaker Growth Hit Earnings
Rising Fears Of Stagflation
So far, markets have not fully priced in a worst-case economic scenario, one where rising tariffs lead to slower growth coupled with surging prices, also known as stagflation.
Yet, a growing number of economists are increasing their subjective probabilities of a U.S. recession in 2025, especially if retaliatory tariffs hit U.S. exports and consumer sentiment deteriorates.
This week, JPMorgan raised U.S. probability odds to 40%, up from 30% previously.
Uncertainty also clouds the Federal Reserve’s path forward. Although markets currently expect three 25-basis-point rate cuts by the end of 2025, rising inflation risks from new tariffs could tie the Fed’s hands.
The central bank may find itself squeezed between the need to support slowing growth and the imperative to fight resurgent price pressures, a policy dilemma reminiscent of the 1970s.
Read Next:
President Trump delivers a live address on tariffs from the White House at 4 p.m. ET.
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