I spent a long time working on a nice, big explainer blog to talk all about tariffs with you. Then, yesterday, we got the much-anticipated Liberation Day announcement, and you’ve seen the market reaction since.

I hope you celebrated yesterday!

Anyway, true to trump’s governing style, he changed the game and made me delete everything I had worked up. Needless to say, this will be a shorter blog than my last few. But I wanted to put the trade war, as of today, in terms people can understand, and that can give us a frame of reference for what might come next.

The Salvo

On Tuesday, April 2nd, trump enacted and outlined his historic new tariff regime. The regime works in the following ways, as of now:

– A universal 10% tariff on every single country that imports to the US, except russia, Belarus, Iran, and North Korea (for some reason).

– A 25% tariff on every single foreign automobile, including ones assembled in America by their proportion with foreign auto parts (for example, a US-built car with 25% Mexican and 25% Canadian car parts would carry a 12.5% tariff).

– A country-specific “reciprocal” tariff calculated as 50% of that country’s “measure of unfair trade with the US.”

The chart outlining each country’s custom tariff rate can be found here. The first two pages are shown below:

As you can see, a universal minimum of 10%, with rates above that as high as 47%. These are cumulative tariffs, meaning they stack on top of existing tariffs already in place. See that 34% for China right on top? Well, that’s on top of the 20% tariffs trump 2 already put on China, which was already on top of tariffs from trump 1 that Biden never took away. So a 54% tariff increase this year on China, on top of existing tariffs, push our tariff rate on China above 70%.

Overall, America now has a global blended tariff rate, or an average tariff rate across every other country, above 20%. Bloomberg Economics and the Census Bureau estimate our new tariff rate to be 22%. That’s the highest tariff rate since the 1910s, higher than Smoot-Hawley, and much higher than the OECD tariff average of 5.5%.

So how’d the administration come up with these figures?

Well, the answer may surprise you in its lethal simplicity. They simply took the bilateral trade deficit per country, divided by that country’s exports to us, to come up with their percentage, and then took 50% off, as an “opening salvo.” No actual calculations of any unfair trade barriers, opposing tariffs, currency manipulation, none to speak of.

Here’s a couple examples. China, right at the top, has a trade surplus with the US of $294 billion, and their exports to the US totaled $436 billion. 294/436 is 0.67, and half of that is 0.34. Or take New Zealand, with a trade surplus with the US of $1.1 billion, and exports of $5.45 billion. 1.1/5.45 is roughly 0.2, and half of that is 0.1.

It’s almost like they’ve been lying to us the entire time. It’s almost like this was never about making trade more fair, but all about attempting to reduce bilateral trade deficits and make America profit off other countries’ misery.

Needless to say, these tariffs are going to cause a LOT of damage, both to America and to other countries. Trillions of dollars of damage. But I want to leave the specifics for the next issue. Today, let’s put this trade war to a historical perspective.

The War of Independence

For all his chaos and bluster during his campaign and subsequent rule, there was one single underpinning of trump’s policy, both foreign and domestic. In his view, the US has been “raped, pillaged, and cheated” for decades by freeloader countries who don’t play by the same rules. He is a self-obsessed, self-marketed dealmaker, and he believes he is the only person capable of renegotiating the deals the US has made. And his preference is to renegotiate on a bilateral basis, to get two proverbial men in the proverbial room and hash it out in private. That shapes his geopolitical engagement, his economic engagement, and even the way he talks to people.

Regardless of what you think of that, it’s important to understand the context for the moment we’ve just entered. Our president believes that he is shepherding his fledgling nation out from under the yoke of foreign oppression, and into the realm of freedom. In short, and especially with calling it Liberation Day, it’s fair to say that trump is fighting for our independence.

We’ve seen this in one shining moment in our history; the Revolutionary War, our War for Independence from Britain. So let’s compare scenarios.

I titled this edition by saying that this is our Bunker Hill moment. I think it fits directly with the War’s timeline. In 1775, there were some light skirmishes between the British Redcoats and the as-yet-unformed Continental Army, including the famous standoffs at Lexington and Concord. Similarly, trump has issued a few targeted tariffs at a few countries, including the aforementioned 20% tariffs on China. You can find a list of these in the last issue. But it wasn’t until some time later when the Continental Army, under General George Washington and Major General Israel Putnam, stared down the British under General William Howe, and engaged in the first real battle of the war. Conversely, the smaller announcements have been made, we’ve had some time to settle, “battle lines” have begun to form between groups of nations vs America, and now we’ve had our first real trade attack.

Was it a victory? Well, the Battle of Bunker Hill was technically a loss for the Continental Army, and they were forced to mount a tactical retreat while the British took the hill. However, the true victory came in the eyes of the People, who saw a battle in which the British suffered twice their enemy’s casualties, the most in a single engagement in British colonial history, and a resolute army standing strong in the face of tyranny, and that meant more than a single hill. Today, we view the battle as the first American victory.

And now the trade war. The president’s followers seem to believe as he does, that other countries have the superior economic position, that they need to be put down to size, and that America needs a victory in the face of this tyranny. So, the Liberation Day announcement serves to put our enemy (the rest of the world) on notice, that America is tougher than you realize, and that the American People should feel emboldened, that we can prevail over this tyranny.

I see this current moment, April 3, 2025, as the metaphorical day of reflective triumph in an opening salvo. The administration is content with the move it’s made, and now it’s the other team’s turn to play either offense or defense. Similarly to the Revolutionary War, after the Battle of Bunker Hill, the ball was now in British Generals’ court, to decide their next move.

The Aftermath

That all sounds well and good, but how did this event in history end? What can we learn from the aftermath of the Battle of Bunker Hill? Well, I believe we can learn a few things.

Up until that point, King George III did not treat the American Colonies like a serious threat. He saw their acts of rebellion as decentralized and unfocused. That all changed after Bunker Hill. After the battle, he ordered his officers to “use their utmost endeavors to withstand and suppress such rebellion.” After that battle, his enemy ceased to be the rabble of his citizenry, and began to be a true enemy, a unified force that sought to do him and his people harm. Needless to say, he acted accordingly.

General William Howe landed an occupation force at the Colonies’ sister city, New York, in September 1776, and shortly after landing, the ensuing Great Fire of New York burned most of what today is Manhattan to the ground. You can see an artist’s rendition of this in Assassin’s Creed 3. We are still unsure today if the fire was started by British or Americans. But on top of that, over 16,000 British troops eventually landed and occupied the city, making it a successful encirclement tactic that pushed the Continental Army out of New York and into the frontier of Pennsylvania, into far worse terrain.

King George III also responded by bringing in foreign help. Before the Marquis de Lafayette brought French aid to the Continentals, in 1776, the King employed mercenaries in his attempt to suppress the rebellion. Many of these soldiers of fortune came from the German state of Hesse-Cassel. These Hessian soldiers were among the most brutal of British-aligned fighting men, and were used both as Vanguard troops and as additional sentry units. Notably, General Washington’s famous Crossing of the Delaware was to capture terrain held by Hessian mercenaries. But before the Battle of Bunker Hill, foreign mercenaries were not used to supplant British forces. Before the battle, there was no need. But now, King George III needed all the help he could get.

Which brings us to today. With our massive trade salvo, the ball is now in other countries’ court, and we will start to see a global response.

China in particular is currently beset by many internal problems. A rapidly aging population, lack of domestic investment, and real estate crisis, to name a few. Export-driven trade is the lifeblood of their economy, and just now, prices with their #1 export partner are set to nearly double. What would you do in such a situation?

This kind of problem exists in some major countries elsewhere as well, places like Germany and Japan. Other countries, like France and New Zealand, have younger populations and an eye on the future. France’s President Macron, for example, is championing the idea of a Euro-centric defense buildup, since russia has brought full-scale war to their continent, Europe should respond by rebuilding its own defense capability, and that can be used as fiscal stimulus to weather this new storm. Ideas are out there, and more will come in the next days. Every country has its own challenges to overcome, and I’m sure some will sacrifice a lot to come out as unscathed from this trade war as they can be.

If I had to guess, I’d say that countries will look to become regional blocs and not willingly negotiate with the US by themselves. Already, we’ve seen China pair up with Japan and South Korea to jointly respond to new tariffs together. Canada, on the other hand, has stated their desire to work closer with Europe while responding to our tariffs by themselves. We’ll see what happens.

Conclusion

If history is any guide, this is likely the strongest position the US will be in for some time. As we wage our global trade war against everyone else, at least one thing is clear: this party is just getting started. If history is any guide, then we can expect our new enemies to respond to our opening salvo in a multitude of ways. Some ways we can expect, and some will take us by surprise. Economics is a dismal, fake science, and humans are capable of bending a lot of rules to achieve the outcomes we want.

Unfortunately, there is no winning a trade war. Once one starts, everybody loses. Trade relationships can likely never be fully rebuilt, there will always be scarring at the margins, and once trust is eroded, even after 80 years of defending it, it becomes very difficult to rebuild. But this is our ship, America, we’ve tied ourselves to it, and we have a vested interest in seeing how it sails. Maybe the tide is too big, and swallows us up. But just maybe, there might just be a wave we can conquer. These being tariffs, the wave will definitely damage the boat regardless of what we do. But I’m hopeful that we can still make it to our destination.

Categories: Economics - Fiscal Policy, trade war

Tags: Economics, financial, inflation, policy, Stock Market, tariffs, trade war