Sharlife is a Registered Shariah Advisory Firm with Securities Commission Malaysia - The only regulated provider of crypto & stocks Shariah status
Sharlife is a Registered Shariah Advisory Firm with Securities Commission Malaysia - The only regulated provider of crypto & stocks Shariah status
Donald Trump, the President of the United States, announced a policy of reciprocal tariffs called “Liberation Day” on April 2, 2025. This move aims to protect the U.S. economy from trade exploitation by other countries while strengthening domestic industries. What is Trump planning with this tariff war, and what are the potential impacts on the stock and crypto markets?
“Liberation Day” refers to Trump’s effort to free the American economy from trade imbalances that he claims are harming the country. Trump alleges that countries such as China, Mexico, and the European Union have imposed unfair tariffs on American products, causing losses to domestic producers. This policy also seeks to correct injustices in trade agreements like NAFTA and in trade relations with China.
Source: CBS NEWS, President Donald Trump speaks during an event to announce new tariffs in the Rose Garden at the White House, Wednesday, April 2, 2025, in Washington.
Trump’s decision stems from concerns over a large trade deficit, where imports exceed exports. He believes that high tariffs by other countries on U.S. products weaken the competitiveness of American companies and lead to job losses in the manufacturing sector. With reciprocal tariffs, the U.S. imposes the same or higher tax rates on countries that have imposed heavy tariffs on American products.
“This is the declaration of our economic independence,” Trump stated in a speech at the White House Rose Garden. He also declared the day as “Liberation Day” for the American economy.
Trump is targeting several key objectives through this policy:
Reducing the Trade Deficit: Balancing trade flows by equalizing tariff rates.
Boosting Local Industries: Increasing demand for domestically-made products by imposing high taxes on imported goods.
Initiating New Negotiations: Pressuring other countries to reassess their trade agreements with the U.S.
There are several speculations on this matter, but the most prominent are these three theories:
Pressure on the Fed to Lower Interest Rates
Trump may be deliberately creating economic instability through the tariff war to pressure the Federal Reserve into lowering interest rates to "save" the U.S. economy. When interest rates drop, Trump can issue new debt at a lower cost. This benefits him, as the U.S. fiscal deficit is ballooning — issuing more Treasury bonds with lower servicing costs allows for internal economic stimulus and recovery.
Raising Import Tariffs to Replace Lost Tax Revenue
After taking office, Trump cut many taxes for individuals and corporations. With tax revenues declining, the government needed new sources of income. So, Trump imposed tariffs on imported goods — especially from countries he viewed as unfair to the U.S., like China. Since the U.S. is an import-heavy nation with high consumer buying power, goods are still purchased despite being pricier. This way, the government earns extra revenue without directly burdening citizens, as higher prices are offset by previous tax cuts. It seems smart, but it poses long-term risks to consumers if inflation gets out of control.
Tariff War as a Tool to ‘Re-industrialize’ the U.S. Economy (Anti-industrial Hollowing)
This is one of the main themes of MAGA (Make America Great Again). Trump wants to bring U.S. factories back home to revive manufacturing jobs. Tariffs make foreign products more expensive, encouraging U.S. companies to reconsider cost-benefit analysis and potentially relocate back to the U.S. This could increase local employment, raise demand for domestic properties and services, and revitalize economically-declining areas.
Tariff War as Leverage in International Negotiations
Trump may be using the tariff war to gain an upper hand in negotiations, giving him bargaining chips to demand things from certain countries — for example, pressuring a country to buy U.S. debt.
However, while the tariff war might seem strategic, it carries serious risks if it fails. A similar situation occurred nearly 100 years ago during the Great Depression (1929–1939) under President Herbert Hoover.
The following are the announced tariff rates:
According to senior administration officials, a minimum tariff of 10% will take effect on April 5, while reciprocal tariffs will begin on April 9.
Trump signed an executive order to implement the tariffs, declaring that the era of the U.S. being exploited is over. Countries like the European Union, China, Taiwan, South Korea, and Israel will face higher tariffs than the minimum 10%. Meanwhile, countries such as Australia, the United Kingdom, Egypt, Saudi Arabia, and several Latin American nations will only be subject to the basic 10% tariff. Canada and Mexico are currently exempt, although some previous tariffs related to fentanyl and migration issues remain in place.
Economists have warned that these tariffs risk raising consumer prices and could hurt U.S. economic growth. Several automotive companies have already announced vehicle price increases due to tariffs on imported components.
More than a dozen think tanks and taxpayer organizations have sent letters to Congressional leaders, the Department of Commerce, and the Treasury Department opposing the new tariff policy, citing its negative effects on prices of steel, lumber, pharmaceuticals, and vehicles.
United Auto Workers (UAW) President Shawn Fain stated that tariffs can be used as a tool to bring jobs back to the country and to pressure companies to invest in the local workforce.
US Stocks Plunge; Apple Down Over 9%, Nike Falls 14%, One Day After Trump Announces Tariffs
In regular trading on Thursday, the S&P 500 closed down 4.8%, marking its largest single-day decline since mid-2020. The NASDAQ Composite plunged 6%, while the Dow Jones Industrial Average closed down 4%.
Source: Yahoo finance
Apple Inc. (NASDAQ: AAPL) took a sharp hit, with its stock falling over 9% in a single trading session. As a company heavily dependent on Chinese manufacturing and global supply chains, Apple is facing rising costs due to the 54% tariff on Chinese imports. Investors are concerned that these higher costs could either eat into Apple’s profit margins or force the company to raise product prices—potentially weakening consumer demand.
Retailers were also hit hard, with Nike Inc. (NYSE: NKE) shares dropping over 14%. Meanwhile, aircraft maker Boeing Co. (NYSE: BA) fell 11%. Tesla Inc. (NASDAQ: TSLA) closed 5.5% lower, while NVIDIA Corporation (NASDAQ: NVDA) lost 8%.
(graph placeholder)
Investors are now waiting for Federal Reserve Chairman Jerome Powell's speech on the evening of April 4, 2025, to get a glimpse of the health of the U.S. economy and the direction of monetary policy.
The market is now expecting four interest rate cuts by the Fed this year, up from three cuts expected before Trump's tariff announcement, according to the FedWatch tool.
However, based on Jerome Powell's speech that day, he stated that "the tariff hikes will be much larger than expected" which will have an impact on the economy in terms of inflation levels and economic growth. According to him, the size and duration of the impact are still uncertain. Furthermore, the inflation rate in February, 2.8% is still far from the Fed's target of 2%. Powell said, “
"Our obligation is to ensure that long-term inflation expectations are well anchored to ensure that a one-time increase in the price level does not become a persistent inflation problem.".
"While uncertainty is high and downside risks have increased, the economy remains in a good place," Powell said. He said the March jobs report, released early Friday, showed unemployment rising to a low of 4.2% last month. Employers added 228,000 jobs, a near-record pace.
Health care, a reliable payroll engine the past couple of years, led March's job gains with 54,000. Leisure and hospitality added 43,000; retail, 24,000, largely because of the return of striking supermarket workers; and transportation and warehousing, 23,000.
But professional and business services, a sprawling sector that includes lawyers, architects and other white-collar workers, added just 3,000 jobs.
Trump’s policies have also impacted the crypto market. The tariff announcement triggered sudden price changes in cryptocurrencies such as Bitcoin (BTC) and Ethereum (ETH), as it sparked various speculations among investors. For instance, Bitcoin's price fell by 5.7% the day after the tariff announcement on March 2, 2025.
Other countries may accelerate the development of central bank digital currencies (CBDCs) to reduce dependence on the U.S. financial system and stablecoins. Furthermore, economic uncertainty caused by the trade war could attract institutional investors toward alternative assets like crypto.
Source: Coinmarketcap, Bitcoin last price on 3 March 2025
Trump’s reciprocal tariff policy has had a significant impact on the global economy, including both stock and crypto markets. In the short term, it has sparked market volatility, while in the long term, it forces companies to adjust their strategies in response to supply chain shifts and trade policy changes.
Investors should continue monitoring these developments to make smarter investment decisions.
