US President Donald Trump has suggested that Wednesday's "Liberation Day" tariff implementation could impact all countries. Strategas Securities managing director of policy research Jeannette Lowe joins Morning Brief with Madison Mills and Julie Hyman to outline what she will be keeping an eye on this Wednesday.
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Well, President Trump said over the weekend the reciprocal tariffs coming Wednesday will include all of the US's trading partners. You'd start with all countries, he told reporters aboard Air Force One. The president has previously referred to April 2nd as liberation day, but details are scarce. Here's what we've been told will happen on Wednesday. Reciprocal tariffs and levies on external agricultural products will be enacted. Also tariffs on goods from Canada and Mexico will start again. Joining us now, Janette Lowe, Strategas Securities Managing Director of Policy Research. Janette, obviously, we won't know until we know, right? On Wednesday, and we get these and we might not even know then, right? There might be some some moving targets. What is most important for investors to be watching for on Wednesday?
So, good morning. There's a couple of things. I think first of all, as you've said, there's been a lot of conflicting headlines over the past couple of days. Maybe the administration hasn't even quite determined what its ultimate plan will be on Wednesday and what they're going to announce. You know, we've had last week a lot of talk from President Trump saying that he's going to be more lenient. Now, it sounds like he's being much more aggressive. Maybe that's to make it more onerous before that deadline actually hits, and then it becomes better. But what is the scope of action is actually announced is going to be important. Is it reciprocal tariffs on all countries or is it phased in kind of going after, you know, that dirty 15 that the Treasury Secretary has been referring to? Does he also announce other sectoral tariffs like maybe on pharmaceuticals on Wednesday? That would be important. If the USMCA tariffs on Canada and Mexico come back into effect, that's even more significant. So we're continue to build up here. He already talked about how he wants $600 billion of tariffs over a year. That's 2% of GDP. That's basically amounting to a doubling of the corporate tax rates. This is quite significant if we actually get the full ballast of everything that he's been talking about so far.
So, Janette, if you're reading the tea leaves when Trump is talking about these universal tariffs on other countries, for example, do you think that that is a escalate to de-escalate strategy? Or is this a real potential clearing event that is as potentially negative for the market as investors are acting this morning?
Yes, so this is important because what we've seen is from reciprocal tariffs. Originally, Trump said he just wants it to be fair. So if other countries are charging a higher rate on products than the US is charging, he wants to raise those rates to even out the playing field. But then he also said that he also wanted to include VAT taxes in these tariffs. He also wants to include other non-tariff barriers. So maybe that's regulatory changes, maybe that's subsidies. So if you put all of that together, reciprocal tariffs on their own aren't necessarily that impactful. But trying to incorporate other countries' VAT taxes is going to be much more significant. So we're looking at maybe like 50 billions for reciprocal tariffs, 165 billion for VAT tariffs. That's important. Also, it would, you know, if it's reciprocal, other countries might have a chance to negotiate, they might be able to lower their rates to then get rid of the tariffs. But if you're putting a tariff on other countries' VAT, that's basically becoming a permanent tariff. It looks much more like a universal tariff overall. And that's going to be much more difficult. Other countries are going to be unlikely to either cut or reduce or repeal their VATs. And that's going to be much more significant for the markets, and I think, reciprocal tariffs alone. The other thing is, does he move to more of a universal tariff? And is that rate more 20% or 10%? 10% would be much more manageable. That would actually be less than the impact of having reciprocal tariffs and reciprocal VAT on other countries. 20% would actually be higher. So where those numbers come out is going to be really important for how the market judges this going forward.
Janette, just to take a little bit of a pause here. VAT, Value Added Tax, for a few people aren't familiar, why is that different from the other tariffs, potential tariffs that we're talking about here? Can you explain that a little more?
Great. So most every country has a value-added tax. So this is a tax on consumption. There's a rebate for exports, so it allows exports to leave the country without having that tax on it. So technically, all goods coming into a specific country have this value-added tax. The US basically, the President has been seeing that the US cannot impose its own value-added tax in reciprocation. So he feels like this is unfair to US imports into those countries, and he wants to account for it. Now, people could argue whether or not that's the right way to look at it. But that's what we think he's ultimately trying to do. So we think that he actually may try to just apply a tariff that would account for the same VAT rate that other countries apply on imports into their country or all goods in their country, and he would apply on imports coming into the US, but still providing a rebate for exports. But this is a way for him to say, I think that other countries are disfavoring US products, and this is how I want to fix it.
To what extent, do you think, Janette, there is something that could regulate the President's efforts when it comes to tariffs? I know we've seen reporting this morning that we may see a bailout for farmers, obviously, widely represented by Republican lawmakers. Could the midterms be something that come into play, and you see more congressional pushback? Or what do you think that pushback might look like?
So I definitely think that if you start to see more voters unhappy with the President's agenda, that could have some impact on making him be more lenient in the future. I think one other thing that's quite important is the fact that we're going to have two special elections in Florida on Tuesday, the day before this tariff announcement. Those are very strong Republican seats. They are 30 plus districts where Trump won, and the Republican candidate won in November. But if the Democrats were to take one of those seats or potentially really close that gap and make it much more narrow, that could also change his thinking a little bit as he goes into April 2nd. But I think, obviously, the market will have an impact. I know that there's sometimes that he says it does not have an impact, but I think, ultimately, overall, that will start to play into his thinking here.
