President Donald Trump was expected to unveil the biggest new trade barrier of his generation on Wednesday. Dubbed “The Day of Liberation,” Trump announced his intention to impose obligations on vehicles and auto parts that have already been imported. He proposed that both new obligations will interlock with other countries and include obligations in certain sectors such as medicines and computer chips.
Trump was elected for recognition of his ability to shake the economy, but he spent much of his campaign on the promise of imposing tariffs.
The latter ultimately won. This is a reality that appears to have surprised economists, the business community and the consumer, many of which are his own voters.
“When Trump was confronted with the argument that he was talking big about tariffs and putting them all in, the response was “the same as in 2016: he didn’t do that,” Michael Strain, director of economic policy studies at the American Enterprise Institute, a professional business think tank, told NBC News ahead of Wednesday’s announcement.
Instead, “What we’ve seen over the past two months is pretty light on traditional GOP policies and MAGA heavy. Business leaders are very confused and disappointed with what has happened so far.”
Customs efforts begin appropriately, with proposals and reversals being made quickly and in a row. Approximately 24 hours before Wednesday’s announcement, White House spokesperson Caroline Leavitt confirmed that Trump and his advisors are still “finishing” new policies.
As Wednesday’s development collapsed, the countries continued their jockeys to overcome their new duties. Vietnam and Israel have shown that they will ease the duties previously placed on US goods, but European leaders still had hopes for negotiations.
However, the mere threat of tariffs has created great uncertainty in the economy, causing the stock market to tanks while coordinating business and consumer trust. The Federal Reserve has shifted its inflation forecast preemptively this year and next, assuming that businesses will respond to higher obligations by increasing costs. Many of them could be passed on to consumers in the form of higher prices for everything, such as avocados, mobile phones, cars, and more.
Federal Reserve Chairman Jerome Powell said the impact on inflation from duties could be “temporary,” but a recent survey suggests that consumers believe the momentum of price rises could accelerate.
Businesses and consumers have already said they foresee worse economic outcomes as a result of tariffs. The University of Michigan’s latest consumer confidence survey found that consumers’ long-term inflation expectations were the largest three-month increase on record, now at 32 years high.
The same survey predicts two-thirds of consumers will increase first, their highest share since 2009.
“This trend reveals a vital vulnerability for consumers given that strong labor markets and revenues are the main source of strength in supporting consumer spending in recent years,” he said.
Companies are already experiencing it, hoping for higher prices. Oil and gas industry executives told Dallas Federal Reserve executives in a survey released last month that the administration’s tariff threat would “increase casing and tube costs by 25%,” but the administration’s desire to lower oil prices to $50 has led us to cut capital costs in 2025 and 2026.
“The “drill, baby, drill” doesn’t work with oil at $50 per barrel,” the person said.
Trump has given many rationales for impose trade obligations, from making money from reviving the American industry to stopping the flow of fentanyl and undocumented people. Wednesday’s announcement is also the culmination of Trump’s long-term stably stalemate that has reversed the US trade deficit. He accuses the country of “using” the United States and “tearing us.”
Even before Wednesday, Trump has already argued for success, claiming that private companies have pledged more investments in the US in two months than the four years of the Biden administration. While some companies have actually pledged to increase spending in the US, analysts have either questioned the scope of concessions received from trading partners in response to the threat of higher obligations, or pointed out that many of the investment commitments he touted are already in work.
From an economics perspective, many experts say Trump’s views on how trade works are at best outdated. It is true that median inflation-adjusted revenues have experienced a multidecard period of relative stagnation beginning at the end of the 1970s. And for men, the median revenue has actually been flat for the past 45 years.
However, over the past decade, they have steadily increased due to both sexes. And while the US has a massive trade deficit, even after adjusting for inflation, it remains a manufacturing powerhouse where exports have never been more valuable than ever before.
Nevertheless, the Trump administration appears to be sticking to the worldview of economic nationalism, ready to enact it no matter the ultimate cost.
“The average wage in the service sector is higher than in the manufacturing sector,” Strain said. “We don’t want to reassign many workers, from some false nostalgia, to jobs that go from higher wages to lower wage jobs, because of the imaginary past. We shouldn’t want American workers to sew tennis shoes together. They can do better jobs than that.”