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%.

For the Current (2025) drawdown, the peak date was 02/19/2025 and the trough date is 04/03/2025 so far. The magnitude of the pullback is -12% so far. For Sahm Rule Triggered (2024), the peak date was 07/16/2024 and the trough date was 08/05/2024. The magnitude of the pullback was -8%, 3-month returns were 10%, 6-month returns were 16%, and cumulative returns are -4%. For Rate hikes and inflation (2022), the peak date was 01/03/2022 and the trough date was 10/12/2022. The magnitude of the pullback was -25%, 3-month returns were 10%, 6-month returns were 15%, 12-month returns were 21%, 24-month returns were 60%, and cumulative returns are 39%. For Covid-19 (2020), the peak date was 02/19/2020 and the trough date was 03/23/2020. The magnitude of the pullback was -34%, 3-month returns were 39%, 6-month returns were 47%, 12-month returns were 75%, 24-month returns were 87%, and cumulative returns are 123%. For QT / U.S.-China Trade War (2018), the peak date was 09/20/2018 and the trough date 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 36%, 24-month returns were 55%, and cumulative returns are 112%. For Industrial Recession (2015-2016), the peak date was 05/21/2015 and the trough date was 02/11/2016. The magnitude of the pullback was -14%, 3-month returns were 13%, 6-month returns were 19%, 12-month returns were 25%, 24-month returns were 54%, and cumulative returns are 172%. For U.S. Debt Downgrade (2011), the peak date was 04/29/2011 and the trough date 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 55%, and cumulative returns are 353%. For European Debt Crisis (2010), the peak date was 04/23/2010 and the trough date was 07/02/2010. The magnitude of the pullback was -16%, 3-month returns were 12%, 6-month returns were 23%, 12-month returns were 25%, 24-month returns were 30%, and cumulative returns are 387%. For Global Financial Crisis (2007-2009), the peak date was 10/09/2007 and the trough date was 03/09/2009. The magnitude of the pullback was -57%, 3-month returns were 39%, 6-month returns were 52%, 12-month returns were 66%, 24-month returns were 96%, and cumulative returns are 637%. For Tech Bubble (2000-2002), the peak date was 03/24/2000 and the trough date was 10/09/2002. The magnitude of the pullback was -49%, 3-month returns were 19%, 6-month returns were 13%, 12-month returns were 33%, 24-month returns were 43%, and cumulative returns are 541%. For Early 90s Recession (1990), the peak date was 07/16/1990 and the trough date was 10/11/1990. The magnitude of the pullback was -20%, 3-month returns were 5%, 6-month returns were 26%, 12-month returns were 28%, 24-month returns were 41%, and cumulative returns are 1586%. For Market Crash (1987), the peak date was 08/25/1987 and the trough date was 12/04/1987. The magnitude of the pullback was -34%, 3-month returns were 20%, 6-month returns were 19%, 12-month returns were 20%, 24-month returns were 54%, and cumulative returns are 2125%. For Volcker Shock (1980-1982), the peak date was 11/28/1980 and the trough date was 08/12/1982. The magnitude of the pullback was -27%, 3-month returns were 38%, 6-month returns were 42%, 12-month returns were 55%, 24-month returns were 50%, and cumulative returns are 4765%. For Oil Crisis (1973-1974), the peak date was 01/11/1973 and the trough date was 10/03/1974. The magnitude of the pullback was -48%, 3-month returns were 13%, 6-month returns were 33%, 12-month returns were 37%, 24-month returns were 73%, and cumulative returns are 7901%. For Tech Crash (1968-1970), the peak date was 11/29/1968 and the trough date was 05/26/1970. The magnitude of the pullback was -36%, 3-month returns were 17%, 6-month returns were 22%, 12-month returns were 46%, 24-month returns were 54%, and cumulative returns are 7091%. For Financial Crisis (1966), the peak date was 02/09/1966 and the trough date was 10/07/1966. The magnitude of the pullback was -22%, 3-month returns were 11%, 6-month returns were 23%, 12-month returns were 32%, 24-month returns were 40%, and cumulative returns are 6707%. For Flash Crash (1961-1962), the peak date was 12/12/1961 and the trough date was 06/26/1962. The magnitude of the pullback was -28%, 3-month returns were 8%, 6-month returns were 20%, 12-month returns were 34%, 24-month returns were 53%, and cumulative returns are 9424%. For Suez Canal Crisis (1956-1957), the peak date was 08/02/1956 and the trough date 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 32%, 24-month returns were 47%, and cumulative returns are 12683%. For Post WWII Crash (1946-1947), the peak date was 05/29/1946 and the trough date was 05/19/1947. The magnitude of the pullback was -28%, 3-month returns were 13%, 6-month returns were 10%, 12-month returns were 16%, 24-month returns were 8%, and cumulative returns are 36086%. For Fed Tightening (1937), the peak date was 03/10/1937 and the trough date was 04/28/1942. The magnitude of the pullback was -60%, 3-month returns were 16%, 6-month returns were 27%, 12-month returns were 54%, 24-month returns were 60%, and cumulative returns are 66604%. For Great Depression (1929-1932), the peak date was 09/16/1929 and the trough date was 06/01/1932. The magnitude of the pullback was -86%, 3-month returns were 93%, 6-month returns were 55%, 12-month returns were 122%, 24-month returns were 119%, and cumulative returns are 113145%. For the average drawdown, the magnitude of the pullback was -33%, 3-month returns were 21%, 6-month returns were 26%, 12-month returns were 42%, 24-month returns were 57%.