America's 'Liberation Day' set to intensify global trade war

A tariff-a tax on imports-may be a simple concept, but its impact is anything but. This much is known-tariffs distort economies, inflate consumer prices, disrupt global trade, stifle competition, and trigger retaliation from trading partners. They can be wielded as economic weapons, unleashing ripple effects that extend far beyond national borders.

Now, the world braces for the most extreme tariff policy in modern history. Reports indicate that on April 2, 2025, President Trump's so-called 'Liberation Day', the United States (US) will launch an aggressive trade offensive, imposing sweeping reciprocal tariffs on its biggest trading partners. The move is designed to match US tariff rates with those of its foreign competitors and includes sector-specific levies on automobiles, pharmaceuticals, and semiconductors.

At the heart of this plan is a targeted crackdown on what Trump's administration calls the 'Dirty 15'-countries with persistent trade imbalances with the US, including China, the European Union (EU), Canada, Mexico, Japan, South Korea, India, Brazil, and Vietnam. These nations, which collectively account for most US foreign trade, will be hit hardest. While earlier tariff proposals considered tiered trade barriers, Trump's team now aims to assign individualised tariff rates to each country, intensifying economic warfare.

The implications are seismic: the new tariffs could reach levels unseen in decades, hitting virtually all imports into the US Trump has also ruled out widespread sectoral exemptions, ensuring that few industries escape the impact. With the president's emergency economic authority, these tariffs could take effect immediately on April 2-escalating a global trade war overnight.

TRUMP'S FIRST TERM - A BLUEPRINT FOR PROTECTIONISM: Trump's first presidency (2017-2021) was marked by an all-out assault on free trade. Under the banner of "America First," he dismantled decades of free-market policies, imposing crippling tariffs on China, the EU, Canada, and Mexico, claiming to protect American jobs and industries.

Using Section 232 of the Trade Expansion Act (1962) (national security justification) and Section 301 of the Trade Act (1974) (targeting "unfair" trade practices), Trump levied $370 billion in tariffs on Chinese goods, citing intellectual property theft and forced technology transfers. He slapped tariffs on European steel and aluminium, igniting swift retaliation. NAFTA was scrapped and replaced with the USMCA, negotiated under threats of tariffs on Canadian and Mexican steel and aluminium.

The consequences were immediate. China retaliated with tariffs on US soybeans, pork, and agricultural goods, imperilling American farmers. The EU countered with tariffs on US whiskey, motorcycles, and dairy, forcing companies to pivot to new markets. Canada and Mexico diversified their trade portfolios, reducing their dependence on the US Meanwhile, Japan, South Korea, and India faced higher tariffs on exports like auto parts, steel, and textiles.

Trump's trade war inflated prices, slowed global trade growth, and weakened US economic influence. As manufacturers passed higher costs onto consumers, inflation surged, supply chains fractured, and global GDP shrank. America's allies responded by strengthening regional trade agreements, including the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), and the Regional Comprehensive Economic Partnership (RCEP)-both excluding the US

SECOND TERM - NO-HOLDS-BARRED ECONOMIC WARFARE: Re-elected with resounding mandate, Trump's second term has ushered in an even more aggressive protectionist agenda. His team has wasted no time in reviving its hardline trade policies, ordering an immediate review of "unfair trade practices" and "currency manipulation", with April 2 set as the deadline for action.

This time, the trade war is bigger, broader, and deadlier. The message is clear: Trump sees tariffs as economic weapons to coerce trade partners into submission. With the US serving as the largest export market for most of its trading partners, his administration believes it holds the upper hand. Moreover, during his first presidency, while tariffs disrupted global markets and triggered inflation abroad, the US economy remained relatively insulated from major inflationary pressures-a factor that likely emboldens Trump's renewed push for aggressive protectionism.

GLOBAL CONSEQUENCES - A LOOMING ECONOMIC CRISIS: However, this strategy is a double-edged sword. A new trade war is set to provoke fierce retaliation, sending shockwaves through the global economy. China is likely to impose counter-tariffs on US agricultural and tech goods, further shifting supply chains toward India, Mexico, and Southeast Asia. Beijing may also strengthen economic ties with the EU and Latin America, accelerating America's economic isolation.

The EU is likely to retaliate with tariffs on US whiskey, dairy, and tech products, while expanding partnerships with China and India. This could lead to a deterioration of US-EU relations, hurting many American companies reliant on European markets.

Canada and Mexico-deeply integrated into the North American auto industry-will face higher production costs and retaliatory tariffs on US agriculture and consumer goods. Both are poised to seek accelerated trade diversification to reduce reliance on the US. Canada, in particular, remains highly vulnerable, as its economy depends heavily on exports of oil, lumber, and autos-which the US can afford to forgo.

Japan, South Korea, and India-other key US allies-will experience rising import costs and supply chain instability. While India might benefit from the relocation of manufacturing out of China, it could also face US tariff pressures on textiles and technology exports.

SOUTH ASIA - A SILVER LINING FOR BANGLADESH: One unintended consequence of US tariffs could be a boost for Bangladesh. If US levies on Indian textiles increase, Bangladesh's garment industry could gain a competitive edge. With India's cost advantage eroded, Bangladesh could further strengthen its foothold in the US and EU apparel markets.

GLOBAL ECONOMIC TURMOIL AHEAD: The immediate fallout from Trump's tariffs will be supply chain chaos, soaring inflation, and a global economic slowdown-if not an outright global recession. As companies scramble to diversify away from China, rising costs and logistical disruptions will send shockwaves across industries. Some corporations may find themselves with no choice but to accelerate investments-or even relocate-to the US to safeguard their market share.

This outcome would vindicate Trump's argument that tariffs can revive American manufacturing, shrink trade deficits, and pressure trade partners into fairer deals. However, the unintended consequence may be a deeper economic realignment, as more nations may pivot toward China's economic sphere to counterbalance US protectionism.

April 2, 2025, may be Trump's 'Liberation Day,' but for global trade, it could mark the dawn of an economic inferno.

Dr CAF Dowlah is a retired Professor of Economics and Law in the United States. Currently, he serves as the Chairperson of the Bangladesh Institute of Policy Studies. Chair-BIPS@bipsglobal.org