Lessons from “Liberation Day”: A guide to tariffs

The table provides a detailed analysis of the U.S. trade deficit and tariff rates with several countries. For China, the U.S. trade deficit stands at $295.4 billion, with exports to the United States totaling $438.9 billion, resulting in a trade deficit to export ratio of 67%. The White House quoted tariffs charged to the United States are also 67%, with no difference between the calculated and quoted rates. The “discounted,” or halved, reciprocal tariff rate is 34%, matching the U.S. announced reciprocal tariff rate. The European Union (EU) has a trade deficit of $235.6 billion with the United States, exporting $605.8 billion, leading to a 39% trade deficit ratio. The quoted tariffs are 39%, with a “discounted” rate of 20%, which aligns with the U.S. announced rate. Vietnam’s trade deficit is $123.5 billion, with exports of $136.6 billion, resulting in a 90% ratio. The quoted tariffs are 90%, with a “discounted” rate of 45%, and the U.S. announced rate is 46%. Taiwan has a $73.9 billion trade deficit, exporting $116.3 billion, with a 64% ratio. The quoted tariffs are 64%, with a “discounted” rate of 32%, matching the U.S. announced rate. Japan’s trade deficit is $68.5 billion, with exports of $148.2 billion, leading to a 46% ratio. The quoted tariffs are 46%, with a “discounted” rate of 23%, and the U.S. announced rate is 24%. Lastly, South Korea has a $66.0 billion trade deficit, exporting $131.5 billion, resulting in a 50% ratio. The quoted tariffs are 50%, with a “discounted” rate of 25%, aligning with the U.S. announced rate. This analysis highlights the alignment between trade deficits and tariff rates, as well as the application of reciprocal tariffs to address trade imbalances.

The chart titled “April 2nd Tariffs Exceeded Expectations” illustrates the U.S. effective tariff rate as a percentage from 1900 to 2025, highlighting significant changes over time with a focus on recent developments as of April 2. Historically, the U.S. effective tariff rate was around 30% in the early 1900s, but it experienced a general decline over the decades, dropping below 5% by the mid-20th century. From the 1950s onward, the rate remained relatively stable and low. However, as of April 2, there has been a notable increase in tariffs. Initially, the chart indicates a 5.4% effective tariff rate composed of a 20% tariff on China, and a 25% tariff on Mexico and Canada for non-USMCA (United States-Mexico-Canada Agreement) trade. Pre-April 2, the chart shows a range of JPM IB (J.P. Morgan Investment Bank) estimates for pre-April 2 tariffs that are above the initial dot. Post-April 2, there is a new dot indicating the U.S. effective tariff rate, which clearly exceeds the previously estimated range of outcomes. The Post-April 2 dot adds country-specific reciprocal rates to the previously added tariffs, leading to an effective tariff rate at about 25%.

This chart provides a list of S&P 500 drawdown events, their peak and trough dates, magnitude of pullback, 3-month, 6-month-12-month, 24-month, and cumulative returns. For the Tariff Tantrum (2025) event, the prior peak was 02/19/2025 and the trough was 04/03/2025. The magnitude of the pullback was -12%, 3-month returns are not available, 6-month returns are not available, 12-month returns are not available, 24-month returns are not available, and cumulative returns are not available. For the Sahm Rule Triggered (2024) event, the prior peak was 07/16/2024 and the trough was 08/05/2024. The magnitude of the pullback was -8%, 3-month returns were 12%, 6-month returns were -5%, 12-month returns are not available, 24-month returns are not available, and cumulative returns are 4%. For the Rate Hikes and Inflation (2022) event, the prior peak was 01/03/2022 and the trough was 10/12/2022. The magnitude of the pullback was -25%, 3-month returns were 11%, 6-month returns were 14%, 12-month returns were 22%, 24-month returns were 64%, and cumulative returns are 51%. For the Covid-19 (2020) event, the prior peak was 02/19/2020 and the trough was 03/23/2020. The magnitude of the pullback was -34%, 3-month returns were 40%, 6-month returns were 45%, 12-month returns were 75%, 24-month returns were 99%, and cumulative returns are 141%. For the QT / U.S.-China Trade War (2018) event, the prior peak was 09/20/2018 and the trough was 12/24/2018. The magnitude of the pullback was -20%, 3-month returns were 19%, 6-month returns were 25%, 12-month returns were 37%, 24-month returns were 58%, and cumulative returns are 130%. For the Industrial Recession (2015-2016) event, the prior peak was 05/21/2015 and the trough was 02/11/2016. The magnitude of the pullback was -14%, 3-month returns were 13%, 6-month returns were 20%, 12-month returns were 27%, 24-month returns were 45%, and cumulative returns are 195%. For the U.S. Debt Downgrade (2011) event, the prior peak was 04/29/2011 and the trough was 10/03/2011. The magnitude of the pullback was -19%, 3-month returns were 16%, 6-month returns were 29%, 12-month returns were 32%, 24-month returns were 53%, and cumulative returns are 391%. For the European Debt Crisis (2010-2012) event, the prior peak was 04/23/2010 and the trough was 07/02/2010. The magnitude of the pullback was -16%, 3-month returns were 11%, 6-month returns were 24%, 12-month returns were 31%, 24-month returns were 34%, and cumulative returns are 428%. For the Global Financial Crisis (2007-2009) event, the prior peak was 10/07/2009 and the trough was 03/09/2009. The magnitude of the pullback was -36%, 3-month returns were 39%, 6-month returns were 53%, 12-month returns were 69%, 24-month returns were 95%, and cumulative returns are 698%. For the Tech Bubble (2000-2002) event, the prior peak was 03/24/2000 and the trough was 10/09/2002. The magnitude of the pullback was -49%, 3-month returns were 19%, 6-month returns were 11%, 12-month returns were 34%, 24-month returns were 45%, and cumulative returns are 595%. For the Early 90s Recession (1990) event, the prior peak was 07/16/1990 and the trough was 10/11/1990. The magnitude of the pullback was -20%, 3-month returns were 7%, 6-month returns were 28%, 12-month returns were 29%, 24-month returns were 38%, and cumulative returns are 1,726%. For the Market Crash (1987) event, the prior peak was 08/25/1987 and the trough was 12/04/1987. The magnitude of the pullback was -34%, 3-month returns were 19%, 6-month returns were 19%, 12-month returns were 24%, 24-month returns were 57%, and cumulative returns are 2,310%. For the Volcker Shock (1980-1982) event, the prior peak was 11/28/1980 and the trough was 08/12/1982. The magnitude of the pullback was -27%, 3-month returns were 36%, 6-month returns were 45%, 12-month returns were 58%, 24-month returns were 62%, and cumulative returns are 5,169%. For the Oil Crisis (1973-1974) event, the prior peak was 01/11/1973 and the trough was 10/03/1974. The magnitude of the pullback was -48%, 3-month returns were 14%, 6-month returns were 31%, 12-month returns were 38%, 24-month returns were 67%, and cumulative returns are 8,565%. For the Tech Crash (1968-1970) event, the prior peak was 11/29/1968 and the trough was 05/26/1970. The magnitude of the pullback was -36%, 3-month returns were 17%, 6-month returns were 24%, 12-month returns were 44%, 24-month returns were 60%, and cumulative returns are 7,688%. For the Financial Crisis (1966) event, the prior peak was 02/09/1966 and the trough was 10/07/1966. The magnitude of the pullback was -22%, 3-month returns were 13%, 6-month returns were 22%, 12-month returns were 33%, 24-month returns were 42%, and cumulative returns are 7,272%. For the Flash Crash (1961-1962) event, the prior peak was 12/12/1961 and the trough was 06/26/1962. The magnitude of the pullback was -28%, 3-month returns were 7%, 6-month returns were 20%, 12-month returns were 33%, 24-month returns were 56%, and cumulative returns are 10,214%. For the Suez Canal Crisis (1956-1957) event, the prior peak was 08/02/1956 and the trough was 10/22/1957. The magnitude of the pullback was -22%, 3-month returns were 6%, 6-month returns were 10%, 12-month returns were 31%, 24-month returns were 44%, and cumulative returns are 13,744%. For the Post WWII Crash (1946-1947) event, the prior peak was 05/29/1946 and the trough was 05/19/1947. The magnitude of the pullback was -28%, 3-month returns were 12%, 6-month returns were 11%, 12-month returns were 19%, 24-month returns were 7%, and cumulative returns are 39,090%. For the Fed Tightening (1937) event, the prior peak was 03/10/1937 and the trough was 04/28/1942. The magnitude of the pullback was -60%, 3-month returns were 15%, 6-month returns were 25%, 12-month returns were 54%, 24-month returns were 59%, and cumulative returns are 72,143%. For the Great Depression (1929-1939) event, the prior peak was 09/16/1929 and the trough was 06/01/1932. The magnitude of the pullback was -86%, 3-month returns were 93%, 6-month returns were 53%, 12-month returns were 121%, 24-month returns were 113%, and cumulative returns are 122,548%.