Three big unknowns ahead of Trump's 'Liberation Day' tariffs

President Donald Trump’s vow to impose tariffs has been a recurring theme. The consistent message from the US administration signals forthcoming import taxes; however, the specifics of these tariffs and their implementation timing remain ambiguous. Since assuming office, Trump has initiated a wave of duties on various goods, including Chinese imports, steel, aluminum, and selected items from Canada and Mexico. Further levies on automobiles are anticipated to take effect this week. The world now awaits the official unveiling of Trump’s comprehensive tariff plan – an initiative developed by his team over recent weeks and referred to by the White House as “Liberation Day.” The key question is: What details will emerge on Wednesday regarding these new US tariffs and their potential global economic impact?

The White House has yet to disclose the potential magnitude of these tariffs, though analysts have speculated on various possible rates. During his presidential campaign, Trump advocated for a uniform 10% tariff across all imports into the United States, occasionally suggesting figures ranging up to 20% or even 60% specifically for imports originating from China. Upon entering office, he introduced the concept of “reciprocal tariffs,” hinting at variable rates depending on the country.

“Very simply, if they levy charges on us, we will charge them,” he stated in February, shortly before directing officials to formulate this plan. The White House subsequently complicated matters by indicating that their recommendations would encompass not just tariffs but also other policies perceived as inequitable to US businesses, such as Value Added Tax (VAT). This has led to considerable anticipation among businesses and political figures attempting to ascertain the prospective tax burden on their goods and the interaction between Wednesday’s announcement and existing duties—like those on steel and aluminum—already enacted by Trump. For example, officials in Europe are preparing for the possibility of double-digit tariffs on their exports, following Trump’s earlier statement this year of intending to impose a 25% import tax on goods from the European bloc.

The Trump administration has not officially confirmed which nations will be affected, although they have characterized Wednesday’s announcement as encompassing a broad scope. On Sunday, the President suggested the new tariffs could be applied to “all countries,” potentially signaling a return to the across-the-board tariff approach he previously endorsed during his campaign. This indication dampened expectations for some nations, such as the UK, that had hoped to avoid these measures, even though many still aim to negotiate a resolution. However, the extent to which these tariffs will be universally applied versus selectively targeted remains unclear.

Last month, US Treasury Secretary Steven Mnuchin indicated that efforts were concentrated on the “Dirty 15″—representing the 15% of countries accounting for the majority of trade with the US and imposing tariffs or other regulations perceived as disadvantaging American firms. The Office of the US Trade Representative, in preparation for formulating recommendations, identified nations of “particular interest.” These include Argentina, Australia, Brazil, Canada, China, the European Union, India, Indonesia, Japan, Korea, Malaysia, Mexico, Russia, Saudi Arabia, South Africa, Switzerland, Taiwan, Thailand, Turkey, the UK, and Vietnam. Trump himself has directed strong criticism toward traditional allies and major trade partners, such as Canada and the EU, declaring last week, “Friend has been, oftentimes, much worse than foe.”

Tariffs function as taxes on imports, naturally raising the critical question: Who will ultimately bear the financial burden? Technically, the immediate answer is US companies that import goods; these entities will face the direct costs, especially if the White House initiates the tariffs “immediately,” as suggested by spokeswoman Karoline Leavitt on Tuesday. However, as tariff levels increase, companies will actively seek strategies to offset these costs, potentially by diversifying suppliers, pressuring business collaborators to share the fiscal impact, or increasing prices for American consumers.

Many firms have stated they are already preparing for possible price adjustments. Yet, this strategy carries risk, as excessively high prices could discourage consumer demand. These economic dynamics elevate the risk of a potential economic downturn, not only within the US but also internationally, given the significant reliance of numerous global firms on US sales. Trump posits that companies aiming to circumvent tariffs could simply relocate their operations to the US. However, this is not a swift or straightforward solution, considering the substantial expenses associated with hiring personnel and establishing manufacturing infrastructure. Factoring in currency market volatility and potential retaliatory measures from other countries, the broader ramifications of Trump’s campaign to recalibrate global trade balances are likely to remain unpredictable well beyond Wednesday’s announcement, and could potentially escalate into a full-blown trade war.