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(WASHINGTON) — Few of President Donald Trump’s first 100 days in his second term carried more fanfare than April 2, which Trump previewed for weeks under the moniker of “Liberation Day.”
At a Rose Garden ceremony replete with a live band and floor-to-ceiling American flags, Trump announced the nation’s largest set of tariffs in nearly a century.
For decades, Trump claimed, other nations had erected trade barriers to shut U.S. companies out of their markets, all the while enriching themselves through access to American shoppers. As a result, factories had shuttered and workers had suffered, Trump added.
“In the face of unrelenting economic warfare, the United States can no longer continue with a policy of unilateral economic surrender,” Trump said.
The tariff announcement, he added, would forever be remembered as “the day that we began to make America wealthy again.”
Instead, the major stock indexes lost about $3.1 trillion in value the next day, suffering their biggest one-day decline since the onset of the COVID-19 pandemic. Days later, Trump suspended a major swathe of the tariffs, sending the market to one of its largest ever single-day increases.
The policy exemplified Trump’s handling of the economy so far in his second term, some experts said. A norm-breaking decision adjusted soon afterward, leaving behind a cloud of uncertainty for consumers and business alike, while risking an economic slowdown.
It remains to be seen whether the potential pain will be outweighed by future gain, experts said, but the policy swerves may undermine those benefits as firms lack the assurance necessary to make long-term investment and hiring decisions.
“This isn’t how we normally do business. We normally like stability and predictability,” Nancy Qian, a professor of economics at Northwestern University, told ABC News. “The cycle of uncertainty is freaking people out.”
‘Challenged the rules of the global trading system’
Trump’s tariff rollout took Wall Street by surprise, but the president had repeatedly promised to make use of the policy tool during his presidential campaign.
“To me, the most beautiful word in the dictionary is ‘tariff,'” Trump said weeks before the election during an appearance at the Economic Club of Chicago.
As a candidate, Trump proposed tariffs of between 60% and 100% on Chinese goods, as well as across-the-board tariffs of between 10% and 20% on all imported goods.
Tariffs would hinder foreign producers and boost domestic manufacturers, reinvigorating regions left behind as the sector’s jobs moved overseas, Trump said.
In the first 100 days, Trump has taken the policy even further than he pledged, experts said.
Trump slapped 145% tariffs on Chinese goods, as well as a universal tariff of 10% on nearly all imports.
Trump also imposed 25% tariffs on Mexico and Canada, the nation’s neighbors, thought to be among its closest allies. Additional tariffs have hit autos, steel and aluminum. For now, Trump has paused a far-reaching set of so-called “reciprocal tariffs” targeting about 75 countries.
“We face the stark reality of large and persistent U.S. deficits as a result of an unfair trading system,” Treasury Secretary Scott Bessent told an audience at the Institute of International Finance in Washington, D.C. last week. “Intentional policy choices by other countries have hollowed out America’s manufacturing sector and undermined our critical supply chains, putting our national and economic security at risk.”
“President Trump has taken strong action to address these imbalances and the negative impacts they have on Americans,” Bessent added.
Qian, of Northwestern University, said Trump’s policy accurately identifies a challenge facing the U.S. economy, as trade partners erect barriers that make it more difficult for some American companies to sell abroad than it is for their foreign competitors to sell in the U.S.
The on-again, off-again approach to tariffs undermines the policy objective, however, since businesses and investors lack the confidence necessary to build up domestic manufacturing or adjust strategy abroad.
“What manufacturers need is what markets need: stability,” Qian said.
Trump’s tariffs elicited retaliatory measures from some countries, including China. The world’s second-largest economy slapped 125% tariffs on U.S. goods and placed export restrictions on some minerals crucial to domestic electronics and weapons industries.
“Trump’s tariffs challenged the very premise of the rules of the world trading system,” Robert Lawrence, a professor of trade and investment at Harvard University’s Kennedy School of Government, told ABC News. “He has done a lot more than he said he would do.”
Consumer sentiment this month dropped to a level lower than any point during the Great Recession. A slew of Wall Street firms, meanwhile, have raised their odds of a U.S. recession within the next year, forecasting a potential drop-off of consumer spending and business investment.
For its part, the Trump administration has largely refused to rule out the possibility of a recession. Trump has vowed to strike new agreements with many U.S. trade partners, predicting the U.S economy may suffer short-term pain but will ultimately flourish under a more favorable set of international rules.
“We have been ripped off by every country in the world practically. And friend and foe,” Trump told reporters in the Oval Office on April 23. “We’re not doing that anymore.”
The fight against inflation
During the campaign, inflation consistently ranked as a top issue of concern to voters – and a majority of them favored Trump to best handle the problem, surveys showed.
Trump vowed to address the issue, saying he would lower prices on “day one.”
Prices would come down as a result of increased energy output, which would reduce costs for the production and transport of goods and in turn lower prices, Trump said.
Inflation has eased since Trump took office, meaning prices have risen at a slower pace than they had been at the end of the Biden administration. Consumer prices increased 2.4% in March compared to a year earlier, registering a pace slightly higher than the Fed’s target of 2%.
Overall prices have not fallen, however, experts told ABC News. In fact, some prices have climbed significantly. Egg prices are 60% higher than where they stood a year ago. Bird flu has continued to decimate the egg supply, lifting prices.
To be sure, the price of oil has dropped nearly 20% since Trump took office. However, experts attributed the trend to an anticipated drop in demand as investors worry about a global recession, instead of the spike in output promised by Trump.
The current level of inflation may offer false reassurance, experts added, since tariffs are widely expected to raise prices over the coming months.
“We are not yet applying the tariffs to the maximum degree and that of course reduces the impact seen in the data so far,” Felix Tintelnot, a professor of economics at Duke University, told ABC News.
Earlier this month, Federal Reserve Chair Jerome Powell raised the possibility that Trump’s tariffs may cause what economists call “stagflation,” which is when inflation rises and the economy slows.
If the Fed raises interest rates as a means of protecting against tariff-induced inflation under such a scenario, it risks stifling borrowing and slowing the economy further. On the other hand, if the Fed lowers rates to stimulate the economy in the face of a potential slowdown, it threatens to boost spending and worsen inflation.
A day later, Trump sharply criticized Powell, urging the central bank to lower interest rates and saying Powell’s “termination cannot come soon enough.”
Since Trump took office, he has criticized Powell on multiple occasions, despite a longstanding norm of political independence at the central bank. The Fed is an independent government agency established by Congress.
“It’s a fundamental feature of our economic system that we have an independent Fed,” Lawrence said. “Trump’s threats are deeply concerning.”
In theory, the removal of Powell could undermine the Fed’s capacity to fight inflation, since it may make the central bank more likely to follow Trump’s preference for lower rates, Lawrence said.
Trump appeared to soften previous attacks on the Federal Reserve last week, saying he has “no intention” of firing Powell.
After making those remarks, Trump continued to pressure Powell.
“I would like to see him be a little more active in terms of his idea to lower interest rates,” Trump said. “This is a perfect time to lower interest rates.”
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