Making Sense of Trump's Liberation Day - (Don't Let The Media Lie To You) 3p433w

To Investors, On April 2nd President Trump announced a wide range of tariffs on goods imported into the United States. This day was called “Liberation Day”. But you might wonder: ‘liberation from what? The United States of America is not a slave to anyone, or constrained by anything?’ Today I want to explain Liberation Day, break down what all of these tariffs mean, how we got here, and to highlight the hypocrisy which a lot of countries have fallen into by screaming “bloody murder” about tariffs. What happened on “Liberation Day” April 2nd, 2025? President Trump announced: * A baseline 10% tariff on all goods imported into the U.S., effective from April 5, 2025. * Reciprocal tariffs on about 90 nations, with rates varying (e.g., 34% for China, 20% for the EU), effective from April 9, 2025. * A 25% tariff on vehicles and auto parts imported into the U.S., effective from April 3, 2025. * Continued enforcement of existing steel and aluminium tariffs, with some exemptions for Canada and Mexico. Firstly the reciprocal tariffs are self-explanatory: the U.S. will impose the same tariff that any country has against the U.S. Here’s a chart shared by John Caple on X, which shows the tariffs countries currently have in place against goods imported from the U.S. The chart also shows the level of reciprocal tariffs (before the current Trump tariffs) that the U.S. has on those countries–and its zero. The reason for the tariffs announced, according to President Trump and various of his cabinet, is to reduce the United States trade deficit which has reached record levels of around $123 billion as of February 2025. Reducing the trade deficit is a piece of a larger three point plan where President Trump is trying to broadly improve the financial status of the United States by 1) reducing national debt for the U.S. which has ballooned to 123% of GDP as of 2024; 2) cutting government waste plus spending which is largely financed through government bonds at uncomfortably high interest rates of around 4-5% (this is where DOGE comes in); and 3) reviving the United States’s manufacturing and export economy. Without going off on a tangent, U.S. Treasury Secretary Scott Bessent explained the idea well, I'm paraphrasing: the aim is to cut government spending by reducing the size of the government and related labour. When that happens, because government spending will be lower, the government won’t have to rely as much on debt-fuelled spending–so bond yields will go down. At the same time the government will generate higher revenues from tariffs and additional business that the U.S. will attract from tariffs. Again the government will rely less on debt spending because there will be more revenues to spend from. This will also push bond yields lower because the government will be in a better financial position from both higher revenues and less spending. When tariffs kick in and manufacturing productivity is brought back into the U.S., jobs removed from the government sector will shift onto the private sector and service the additional productivity growth. But today we’ll mostly focus on how the Liberation Day tariffs play a role in that three point plan. Tariffs are a tax on consumption and in service of the larger mission these tariffs will make imports costlier while encouraging domestic production and promoting job creation in manufacturing by incentivising companies to produce in the U.S. How Did We Get Here? This strategy is part of Trump's "America First" mission–centred around highlighting that what school has taught us about how global trade is free, is inaccurate, and focusing on how because the United States is a disproportionate buyer of goods from every country, the U.S. is running costly trade deficits. The way that we got here is a mix of factors but my thinking is that after Nixon announced in 1971 that U.S. dollars would no longer be exchangeable for gold, the U.S. dollar started appreciating against global currencies because of the demand for the dollar. This meant that it became cheaper for the U.S. to import goods than it was to export goods and this led to a higher standard of living in the U.S. That, along with China entering the world trade organisation, along with other Asian countries, made U.S. manufacturing expensive because goods could be manufactured cheaply outside of the U.S. Deals were likely cut for the U.S. to run trade deficits with China, and the rest of the developing nations to prop up their economies. But this gutted the U.S. industrial base. Here’s a quick story about the car manufacturing economy in the United States: Detroit, once the world’s car-making king, started cracking in the ‘70s as Japan’s cheap, efficient imports rolled in, and by 2001, China piled on with low-cost parts and vehicles—pushing the trade deficit to $213 billion by 2018 according to the Bureau of Economic Analysis. Jobs vanished, either to automation or overseas. Years later General Motors was forced to shut down its Lordstown, Ohio, plant in 2019, leaving thousands high and dry as production shifted to Mexico and beyond. Nowadays many electronics are manufactured in Asia, and for the U.S., this led to 3.7 million jobs lost when this productivity shifted out of America. Textiles saw a 30.4% drop in Black manufacturing jobs from 1998 to 2020, chased overseas by cheaper labor according to the Economic Policy Institute. U.S. steel has been hammered too, with imports forcing plant closures according to a report from the American Iron and Steel Institute. The hollowing out of the manufacturing sector switched the U.S. economy into a services based economy with manufacturing jobs replaced by services sector jobs. In general this resulted in a higher standard of living in the U.S., however when the standard of living improved in the U.S., the country had a higher consumption rate but a low savings rate, forcing the economy to issue foreign debt in order to government spending. As the dollar became stronger, this cycle continued to grow and grow, and has now reached unsustainable levels. The high national debt and persistent trade deficit are reinforcing each other. U.S. national debt is high because the U.S. has a persistent trade deficit, and the persistent trade deficit means the U.S. must continue to fund domestic spending by issuing government bonds, but those bonds are issued at higher and higher interest rates so that makes the interest payments high, which means the government must continue to issue more government debt, which will continue to be at higher rates because, among other factors, the trade deficit is persistent. Brief History of U.S. Tariffs The Trump istration has chosen tariffs as the fix for this problem. But tariffs aren’t an invention of Donald Trump and his cabinet. The United States has historically relied on tariffs to fund tax revenue and protect domestic industries. According to research by Anthony Pompliano, the United States never used to have income tax and relied only on tariff revenue. Pomp mentions that “George Washington signed tariffs into law as the second bill of his istration as the first President of the United States. A year later, the US Revenue Cutter Service (which later became the US Coast Guard) was created to collect [a] 5% tariff on all imports to the country. Tariffs continued to be the main source of government revenue for about 70 years. These tariffs also protected American industries from foreign competition and ensured America was able to become self-sufficient, which was considered a national security issue at the time.” This practice was eroded over the years however, and the chart below shows that tariff revenue for the United States is now effectively zero in comparison to the late 1700s. Addressing Common Misconceptions I’ve seen a lot of comments on social media about how these tariffs are “alienating” the United States and some friends of mine have also commented similarly in private conversations. I’ve also seen comments about how tariffs will lead to inflation so I want to address these inaccuracies: * The Trump istration is not alienating the U.S., instead they are trying to revert to more fair trade for the U.S. by reorganising the global trade order. * Tariffs will not lead to higher prices in the long term. 1. Is Trump alienating the U.S. from the rest of the world? No. Here’s why… As mentioned earlier in this letter, the U.S. is a buyer of goods from every economy in the world, which has led to the U.S. having trade deficits with those countries. We can all understand that selling more than you consume will put you in a better financial position, so trade deficits are bad—especially if they exist across the board and are growing persistently as shown in the chart below. The U.S. therefore needs to take a stance that puts their country first and s their local economy. The customer almost always has the leverage, so in this example as the customer to the world, the U.S. has leverage through tariffs because if you no longer have a customer you no longer have a business. Do you see where I’m going with this? That said, there are many examples of countries that have similar protectionist policies and everyone is conveniently ignoring those because people are paying too much attention to the mainstream media which constantly distorts the truth. Let’s run through a few examples… India India is known for its protectionist trade policies, particularly in the automotive sector. India reportedly imposes tariffs on imported cars at around 106% as part of a “Make in India” campaign to boost local manufacturing. This tariff doubles the price of imported cars, and therefore encourages consumers to buy domestically produced cars. Additionally, ownership laws for foreign companies in India add another layer of protectionism. Foreign direct investment (FDI) is regulated, with certain sectors requiring t ventures or partnerships with local companies. For instance, until recent reforms, the automotive sector often required foreign firms to collaborate with Indian partners, but restrictions remained in strategic sectors like defense and telecommunications. China China is an interesting and well documented example of a country that has intense tariffs and trade barriers. Historically, foreign carmakers were required to form t ventures with Chinese companies to produce and sell vehicles, a policy in place until 2022 when China announced it would allow 100% foreign ownership in some cases. However, restrictions persist in strategic sectors like energy, mining, banking, insurance, and defense, where foreign ownership is limited to protect domestic industries. Google, Meta’s social media products, and various non-Chinese shows cannot be accessed in China, which is no secret, and something the country is proud of. The difficulty for foreign businesses is also compounded by a complex regulatory environment. For example, intellectual property rights protection remains a concern, with reports of mandatory technology transfers in t ventures. These policies apparently aim to foster domestic innovation but are controversial, with foreign companies often citing barriers to market entry and competition with state-backed enterprises. We also can’t forget that every industry is essentially state backed in China and is wholly ed through subsidised loans and policy. And one other thing, while most of the world has a free floating exchange rate, China manipulates its currency by tightly managing its exchange rate with the U.S. dollar daily to reduce the impacts of currency volatility on their domestic economy. Where’s all the outcry about that? Did you also know that China has tight capital controls to restrict capital flight in times of economic volatility? South Africa South Africa also has a tariff structure designed to protect local industries, with an average tariff rate of 7.1%, though specific goods like apparel face higher rates, such as 40% for finished goods. The tariff schedule, governed by the South African Revenue Service (SARS), includes various rates ranging from 0 to 30% but can be much higher in some instances. According to the International Trade istration “the end rate for apparel is 40 percent, yarns 15 percent; fabrics 22 percent; finished goods 30 percent; and fibers, 7.5 percent. Import duties on vehicles and automotive components will remain at 25 percent on light vehicles and 20 percent on original equipment components through 2035.” South Africans are also very aware of the ownership laws affecting local companies as well as foreign companies in relation to the Broad-Based Black Economic Empowerment (B-BBEE) – which mandates companies to meet thresholds of black ownership and management control to participate in government tenders and contracts. This policy, while aimed at economic transformation, can pose challenges for foreign firms. Ireland As a member of the European Union, Ireland applies EU tariffs, with duty rates on manufactured goods from the United States generally ranging from 5-8%, based on the c.i.f. value at the port of entry. Agricultural and food items are subject to import levies that vary with world market prices, reflecting EU protectionism in these sectors. If you’re not happy with those examples, let's look at Brazil. Brazil According to trade data, Brazil’s average applied tariff rate is approximately 13.5%. However, specific sectors face significantly higher rates, particularly the automotive industry, where the import tax on cars is set at 35%, with additional taxes that vary by engine size and fuel type. This high tariff, effective as of 2025, aims to protect domestic manufacturers like Fiat and Volkswagen, which have significant production facilities in Brazil. Ownership laws for foreign companies in Brazil generally reportedly allow 100% foreign ownership, however, restrictions exist in certain sectors to protect national interests. For instance, in the media sector, radio and television stations must be majority-owned by Brazilian citizens, a policy rooted in cultural preservation and national security concerns. Additionally, sectors like financial institutions, telecommunications, and defense require prior approval for foreign investment, creating bureaucratic hurdles that can delay market entry. Still not satisfied? No stress, I’ll give yo 5o44