Making Sense of Trump's Liberation Day - (Don't Let The Media Lie To You)

To Investors,

On April 2nd President Trump announced a wide range of tariffs on goods imported into the United States. This day was called “Liberation Day”. But you might wonder: ‘liberation from what? The United States of America is not a slave to anyone, or constrained by anything?’ Today I want to explain Liberation Day, break down what all of these tariffs mean, how we got here, and to highlight the hypocrisy which a lot of countries have fallen into by screaming “bloody murder” about tariffs.

What happened on “Liberation Day” April 2nd, 2025?

President Trump announced:

* A baseline 10% tariff on all goods imported into the U.S., effective from April 5, 2025.

* Reciprocal tariffs on about 90 nations, with rates varying (e.g., 34% for China, 20% for the EU), effective from April 9, 2025.

* A 25% tariff on vehicles and auto parts imported into the U.S., effective from April 3, 2025.

* Continued enforcement of existing steel and aluminium tariffs, with some exemptions for Canada and Mexico.

Firstly the reciprocal tariffs are self-explanatory: the U.S. will impose the same tariff that any country has against the U.S. Here’s a chart shared by John Caple on X, which shows the tariffs countries currently have in place against goods imported from the U.S. The chart also shows the level of reciprocal tariffs (before the current Trump tariffs) that the U.S. has on those countries–and its zero.

The reason for the tariffs announced, according to President Trump and various members of his cabinet, is to reduce the United States trade deficit which has reached record levels of around $123 billion as of February 2025. Reducing the trade deficit is a piece of a larger three point plan where President Trump is trying to broadly improve the financial status of the United States by 1) reducing national debt for the U.S. which has ballooned to 123% of GDP as of 2024; 2) cutting government waste plus spending which is largely financed through government bonds at uncomfortably high interest rates of around 4-5% (this is where DOGE comes in); and 3) reviving the United States’s manufacturing and export economy.

Without going off on a tangent, U.S. Treasury Secretary Scott Bessent explained the idea well, I'm paraphrasing: the aim is to cut government spending by reducing the size of the government and related labour. When that happens, because government spending will be lower, the government won’t have to rely as much on debt-fuelled spending–so bond yields will go down. At the same time the government will generate higher revenues from tariffs and additional business that the U.S. will attract from tariffs. Again the government will rely less on debt spending because there will be more revenues to spend from. This will also push bond yields lower because the government will be in a better financial position from both higher revenues and less spending. When tariffs kick in and manufacturing productivity is brought back into the U.S., jobs removed from the government sector will shift onto the private sector and service the additional productivity growth.

But today we’ll mostly focus on how the Liberation Day tariffs play a role in that three point plan. Tariffs are a tax on consumption and in service of the larger mission these tariffs will make imports costlier while encouraging domestic production and promoting job creation in manufacturing by incentivising companies to produce in the U.S.

How Did We Get Here?

This strategy is part of Trump's "America First" mission–centred around highlighting that what school has taught us about how global trade is free, is inaccurate, and focusing on how because the United States is a disproportionate buyer of goods from every country, the U.S. is running costly trade deficits. The way that we got here is a mix of factors but my thinking is that after Nixon announced in 1