Stocks recover on hopes of liberal tariffs on Liberation Day

·       The market is now expecting a less hawkish Trump tariffs stance on China, Canada, Mexico, and the EU to be announced later in the day

·       Trump may announce maximum RECIPROCAL tariffs on some countries like India on Liberation Day but may delay the implementation to keep the negotiation window open

·       Overall, Trump may blink again on his draconian tariff policies as these tariffs are import duties to be paid by US importers and eventually borne by US consumers, not exporters

On Tuesday, April 1, 2025, Wall Street Futures slipped after a WAPO report indicating Trump's team may have drafted a proposal to impose tariffs of around 20% on at least most imports to the country. On Monday evening, two administration sources familiar with the matter said Trump has been presented with "multiple" options and may not make his final choice until the morning of the April 2 Liberation Day announcement. Trump has said that he will not negotiate with other countries on Wednesday's tariffs until after they take effect. Trump has repeatedly suggested the tariffs would be "reciprocal" in direct proportion to those levied by foreign countries on US exports and indicated that many countries would not be included in the import duties.

Trump admin floating various tariffs plan for the Liberation day to test potential reaction of Wall Street

On Tuesday, Wall Street Futures recovered after the US Treasury floated a new tariff option for Trump to consider. Trump and his advisors are still undecided about the Liberation Day reciprocal tariffs narrative with less than 24 hours until the big event at the White House Rose Garden. The WSJ report indicated that the US Treasury has prepared another option for Trump to consider:

·       Across-the-board tariff increase

·       On a subset of selected nations

·       Would not be as high as 20% (contrary to an earlier report)

Late Tuesday, the US Treasury Secretary Bessent said Trump will announce a maximum for tariffs as a ‘cap’, but countries can then bring them down after successful negotiations. The amounts announced tomorrow are the highest the tariffs will go and affected counties could then take steps to bring the tariffs down.

In other words, Trump may impose maximum reciprocal tariffs on various countries as pressure tactics and will keep open the negotiation window for a potential trade deal and concessions. Trump is also under huge pressure as these tariffs will be paid by US importers, not Chinese or other exporters and eventually borne by US consumers. This will result in higher prices for almost everything and a higher cost of living. Thus Trump is open to further negotiation after the so-called Liberation Day and may also delay the effective implementation of all his tariffs plan/announcement by at least 3 months to July 1, 2025, from April 3.

As of April 2, 2025, President Trump is preparing to announce a series of new tariffs under the initiative dubbed "Liberation Day," aiming to bolster the ailing U.S. manufacturing sector and address perceived unfair trade practices by other nations.

Key Components of the Trump Tariff Plan:

·       Targeted Reciprocal Tariffs: The administration plans to implement "reciprocal tariffs," matching the tariffs that other countries impose on U.S. products to ensure a level playing field in international trade.

·       Sectoral Automobile Tariffs: A 25% tariff on imported cars and car parts is expected, aiming to encourage domestic automobile production and reduce reliance on foreign manufacturers.

·       Sectoral Metal tariffs: The plan includes tariffs on steel and aluminum imports, targeting industries significantly impacted by international competition.

·       Secondary Tariffs: This involves 25% tariffs on any trading partner of the US that imports Venezuelan Oil & Gas. Trump also threatened Russia about this tariff.

Potential Economic Implications:

Economists have expressed concerns that these tariffs could lead to increased costs for U.S. consumers and potential retaliatory measures from trading partners, possibly escalating into a broader trade conflict; US exporters may be losers. There is also apprehension about the potential strain on international alliances and the risk of an economic downturn or a synchronized global Trumpcession.

International Response:

The EU and UK: Both have voiced apprehensions regarding the tariffs, particularly the possibility of sector-specific tariffs and permanent levies. They are considering countermeasures to protect their economic interests.

Ireland: The proposed tariffs could significantly impact the Irish economy, especially due to the 25% tariff on Irish-based U.S. pharmaceutical companies. This move threatens approximately 80,000 jobs and has led to the scrapping of a €2.2 billion cost-of-living package by the Irish government.

Domestic Considerations:

The tariff plan has been shaped by key advisers who advocate for protective measures to restore American industry. Notable figures include Peter Navarro, Howard Lutnick, Scott Bessent, and Matt Greer, all of whom support the use of tariffs to bolster domestic manufacturing and reduce the national deficit.

While the administration asserts that these tariffs will rejuvenate U.S. manufacturing and generate substantial revenue, critics warn of potential negative consequences, such as increased consumer prices and strained international relations. The full impact of the "Liberation Day" tariffs will depend on their implementation and the responses from global trading partners.

Trump has designated April 2, 2025, as "Liberation Day," a term he uses to mark the announcement and implementation of a significant new round of tariffs aimed at reshaping U.S. trade policy. This initiative builds on his long-standing belief that tariffs can address trade imbalances, boost domestic manufacturing, and restore American economic strength. The plan is set to be unveiled in a White House Rose Garden ceremony at 4 p.m. ET today, April 2, 2025, with the tariffs taking effect immediately, according to White House statements.

Trump’s Reciprocal Tariffs Narrative: Liberation Day

Trump has emphasized "reciprocal tariffs," meaning the U.S. would impose duties on imports from countries at rates matching what those countries charge on U.S. exports. This could also account for non-tariff barriers like subsidies or regulations perceived as unfair to American businesses. While earlier discussions suggested targeting a "Dirty 15" group of nations with the largest trade deficits with the U.S., Trump has recently indicated a broader approach, potentially applying tariffs to "all countries" as a starting point, with room for negotiation.

Scope, Scale, and Goals of Trump Tariffs:

The tariffs could cover trillions of dollars in imports, significantly expanding beyond the $800 billion in duties already imposed on countries like China, Mexico, and Canada earlier in his 1st term. Proposals range from a universal flat rate like 20% or 10% on most imports to customized rates per country. Trump has reportedly pushed aides to "go bigger," rejecting exemptions and smaller measures from his first term.

·       Economic Leverage: To pressure countries into reducing their tariffs or making concessions on issues like migration and drug trafficking (e.g., fentanyl from Mexico and China).

·       Domestic Manufacturing: To incentivize companies to relocate production to the U.S. by making imported goods more expensive.

·       Revenue Generation: To raise funds—potentially $600 billion annually from Americans to pay for the tax cuts and other deficits.

·       Immediate Impact:  White House Press Secretary Karoline Leavitt confirmed the tariffs will be effective immediately upon announcement, leaving little time for preemptive negotiations by other nations.

Economic and Global Implications: Potential stagflation

·       Higher prices: Trump tariffs, if implemented at face value could cost U.S. consumers as importers pass on tariff expenses. Estimates suggest an average household cost increase of $2,700–$3,400 annually; inflation may rise by around 0.7%.

·       Lower Economic growths: Trump’s hawkish tariffs and immigration policies may result in lower real GDP growth by around 0.7%

·       Higher unemployment: Higher cost of living may adversely affect discretionary US consumer spending significantly, affecting private CAPEX for expansion and diversification, resulting in higher unemployment by almost 0.5%

Trade War Risk: Economists warn of an escalating global trade war, which could disrupt supply chains, slow economic growth, and possibly trigger a recession.

Uncertainty and Flexibility

Trump’s team has been refining the plan up to the last minute, with conflicting signals about its final form. The president has suggested he’s open to negotiating tariff reductions post-implementation, framing them as a tool to "level the playing field" rather than a permanent fixture. However, the lack of clarity—whether tariffs will be universal, targeted, or phased—has kept both Wall Street and Real Street in suspense.

Trump tariffs timeline: As of April 2, 2025, the Trump administration has implemented several tariffs and plans to introduce additional ones.

Tariffs Already Implemented

During Trump’s second term, which began in January 2025, several tariffs have been put into effect:

Tariffs on Canada and Mexico (Implemented March 4, 2025):

·       A 25% tariff was imposed on most goods imported from Canada and Mexico, the U.S.’s two largest trading partners, effective March 4, 2025. These tariffs were enacted under the International Emergency Economic Powers Act (IEEPA), citing national emergencies related to drug trafficking (particularly fentanyl) and illegal immigration.

·       Exceptions: Energy products from Canada face a reduced 10% tariff, and goods compliant with the U.S.-Mexico-Canada Agreement (USMCA) were later exempted (see "on hold" section for adjustments).

·       Impact: This affects a significant portion of the $2.2 trillion in annual trade with these countries.

Tariffs on China (Implemented and Escalated):

·       An additional 10% tariff on all Chinese imports was implemented on February 4, 2025, stacking on top of existing tariffs from Trump’s first term (up to 25% on many goods) and some increases under Biden.

·       On March 4, 2025, this was raised to a 20% tariff on all Chinese imports, further escalating the trade war with China, the U.S.’s third-largest trading partner.

·       Impact: This applies to a broad range of goods, including electronics (smartphones, laptops, etc.), which were previously less affected.

·       New comprehensive tariffs of around 20% have been applied on top of the existing 10% duties established during Trump's first term.

Global Metal (Steel and Aluminum) Tariffs (Implemented March 12, 2025):

·       A 25% tariff on all steel imports and a raised 25% tariff on all aluminum imports (up from 10% in some cases) went into effect on March 12, 2025, under Section 232 of the Trade Expansion Act. This reinstated and expanded tariffs from Trump’s first term, closing previous exemptions for countries like Canada, Mexico, the EU, and others.

·       Impact: Aimed at protecting U.S. industries but has sparked retaliatory measures from the EU and Canada.

Auto and Auto Parts Tariffs (Implemented March 27, 2025):

·       A 25% tariff on imported passenger vehicles (sedans, SUVs, light trucks, etc.) and key auto parts (engines, transmissions, etc.) was enacted on March 27, 2025, under Section 232, targeting national security concerns.

USMCA-compliant vehicles and parts are exempt or partially exempt based on U.S. content, with the tariff applying only to non-U.S. content value.

Tariffs on Hold or Several tariffs have been announced or threatened but are currently on hold or delayed, often due to negotiations or economic considerations:

·       Adjustments to Canada and Mexico Tariffs (On Hold Until April 2, 2025)

·       After initial implementation on March 4, 2025, Trump adjusted the 25% tariffs on Canada and Mexico on March 7, 2025, exempting USMCA-compliant goods (about half of Mexican imports and 38% of Canadian imports) and reducing tariffs on certain Canadian energy products and potash to 10%. These exemptions are temporary and set to expire on April 2, 2025, unless renegotiated.

·       This followed agreements with Canada (border security enhancements) and Mexico (10,000 troops deployed to the border) in February 2025, delaying the original February 4 implementation to March 4, with further adjustments thereafter.

·       Auto industry relief: Tariffs on autos from Canada and Mexico were delayed until April 2, 2025, to minimize disruption to the integrated North American supply chain, following pressure from U.S. automakers.

·       A 25% tariff on all vehicles manufactured abroad is expected to commence on April 3

·       Some Chinese, Mexican, and Canadian Goods: The implementation of previously announced tariffs on some goods from these countries has been delayed due to logistical concerns

Reciprocal Tariffs (On Hold until April 2, 2025):

Trump has promised “reciprocal tariffs” to match or exceed tariffs imposed by other countries on U.S. goods, announced as part of his “Liberation Day” plan for April 2, 2025. These are intended to affect trillions more in imports but remain in the planning stage, with details being worked out by the U.S. Trade Representative’s (USTR) office.

·       Potential scope: Could target countries like India (high 15% weighted average tariffs), the EU (10% car tariffs), and others in the so-called “Dirty 15” list of high-tariff nations. Implementation is pending negotiations, with some countries (e.g., India) already seeking deals to avoid them.

Additional Threatened Tariffs (On Hold or Under Consideration):

·       European Union: Trump threatened 25% tariffs on EU imports in February 2025 and a 200% tariff on European alcohol in March 2025 in response to EU retaliation plans. These are not yet implemented, with the EU delaying its retaliatory tariffs (originally set for April 1) to mid-April for negotiation attempts.

·       Colombia: A brief threat of 25% tariffs (escalating to 50%) on Colombian goods in January 2025 was withdrawn after Colombia accepted deportation flights.

·       Oil from Venezuela: A 25% secondary tariff on countries importing Venezuelan oil was proposed but remains unimplemented as of April 2, 2025.

·       Other Goods: Tariffs on pharmaceuticals, copper, and lumber have been floated but are not yet in effect, with investigations ongoing under Section 301 or other authorities.

Context and Outlook

·       Implemented Total: As of now, tariffs affect over $800 billion in goods, with projections to exceed $1.4 trillion if temporary exemptions (e.g., Canada/Mexico) expire on April 2, 2025.

·       On Hold Dynamics: Trump’s approach has been characterized by rapid announcements, partial rollbacks, and delays, often tied to negotiations (e.g., border security with Canada/Mexico). The April 2, 2025, deadline—dubbed “Liberation Day”—is a focal point for further escalation, though flexibility has been shown (e.g., auto industry exemptions).

·       Economic Impact: Implemented tariffs have already raised concerns about price increases (e.g., avocados, electronics, cars) and prompted retaliation from Canada (25% on $20 billion in U.S. goods, expandable to $85 billion), China (agricultural goods), and the EU (planned for mid-April). Tariffs on hold could amplify these effects if enacted.

Summary

Overall, this reflects the state of Trump’s tariff policy as of April 2, 2025, with a mix of active measures and strategic pauses shaping global trade dynamics. Trump’s "Liberation Day" tariff plan, as of April 2, 2025, appears to be a bold escalation of his protectionist agenda, with potential rates of 10–25% or higher on a wide range of imports. While aimed at boosting U.S. economic sovereignty, it risks significant domestic and international fallout. Trump has announced broad-based tariffs under his "America First" agenda, branding April 2, 2025, as "Liberation Day." He claims these measures will free the U.S. from dependence on foreign goods and generate significant tax revenue from those foreign nations, ripping off the US for decades after decades.

Gold also hovering around a flat line after getting some boost on increasing Chinese war drilling around Taiwan, while undercut by a report that Trump is ready to negotiate a nuclear deal with Iran despite his recent bombing threat. Gold is also boosted by the increasing concern of Trumpcession Trumpflation or stagflation as a result of Trump’s unconventional and draconian tariff policies. Looking ahead, if Trump sounds less hawkish on Liberation Day tariffs, then Gold may slip.

But also at the same time, a less hawkish approach on his traffic agenda would be negative for the USD and positive for Gold. Gold jumped almost $500; i.e. around 19% from around $2650 to almost $3150 from December’24 to March’25 under Trump despite significant progress on Gaza and Ukraine war permanent ceasefire. This shows Trump's trade war policies and a potential Trumpcession are boosting Gold contrary to earlier rhetoric.

Conclusions

Trump may sound less hawkish on Liberation Day, April 2 about Reciprocal Tariffs; all proposed sectoral tariffs including auto and even metals may be postponed by three months to pave the way for intense negotiations and concessions. Although Trump may announce pharma and other sectoral tariffs of 15-25% by 2nd April Liberation Day, he may defer the implementation day by at least three months to 1st July to keep the negotiation window open. Trump now wants some trade concessions and also kept the negotiation window open. And almost all major trading partners are now ready to negotiate with Trump after seeing the 25% auto tariffs tango. The EU and India are already discussing potential concessions for Trump to avoid an all-out trade war.

Trump is insisting on Sectoral & targeted tariffs on metals, automobiles, pharmaceuticals, semiconductors, lumbers, and dairy products; but he may postpone the actual implementation of the same as a negotiation tactic to get maximum concessions from trading partners including ‘Tariff King’ India and ‘Mini China, but worse than China’ EU. Trump is repeating that most of the US trading partners have taken advantage of the US for decades after decades about tariffs and other business regulations and ripped off the US. Now it’s time for the US to be liberated from such tariff bullying on Liberation Day April 2. Trump plans to impose reciprocal tariffs on such countries that are ripping off the US for decades after decades and India is one of them as a major trading partner.

On April 2 Tariff Liberation Day, although Trump will announce sectoral and country-specific tariffs, he may postpone the effective implementations of all of his planned tariffs including auto, metals, other sectoral, and also any country-specific reciprocal tariffs to at least 1st July to pave the way for trade negotiation rather than protracted confrontations.

Typically, U.S. tariffs take effect 30 days after the official announcement. However, this timeline can vary based on the specific tariff measure and the legal process involved.

·       If Trump imposes new tariffs through an executive order, they might take effect immediately or within a short period.

·       If tariffs are implemented through the U.S. Trade Representative (USTR) under Section 301 (like previous China tariffs), a formal review process could delay implementation beyond 30 days.

Market Wrap:

On early Wednesday, Wall Street Futures were almost flat, recovering from the earlier panic low on hopes of a less hawkish Trump trade war stance on the Tariff Liberation Day. Also, the upbeat ADP Private Payroll report card helped amid fading concern of an all-out Trumpcession. Wall Street also got a boost as Tesla jumped after Trump confirmed that Musk will step back from the current role as DOGE head.

Weekly-Technical trading levels: DJ-30, NQ-100, and Gold

Looking ahead, whatever the fundamental narrative, technically Dow Future (CMP: 42300) now has to sustain over 42500 for a further rally towards 42700/42900-43200/43500 and 43700/44050 and 44250/44400-44500/44800 and 45000/45200-45300/45500 and even 45700/45800-45900/46000 in the coming days; otherwise sustaining below 42400, DJ-30 may again fall to 42000/41500-40900/39500 and 38700-36100 in the coming days.

Similarly, NQ-100 Future (19900) has to sustain over 20200-21050 for a further rally to 21300/21500-21700/21850 and 22050/22200-22350/22500 and 22700/23000-23300/23500 in the coming days; otherwise, sustaining below 21000, NQ-100 may again fall to 20900/20600-20400/20150 in the coming days.

Also, technically Gold (CMP: 3060) has to sustain over 3035/3065 and 3075-3100 for a further rally to 3125/3150-3200/3225; otherwise sustaining below 3065-3065-3045, Gold may again fall to 2990 and 2965/2925-2900/2880 and 2850/2835-2810/2780-2780 and 2745/2725-2695/2665 and further 2635/2600-2585/2560 in the coming days.