The Policy Implications of Liberation Day

Liberation Day, and now the 90-day pause announcement, have come and gone, but the implications for markets remain, and will remain, for quite some time. The tariff levels have been described as a “ceiling” by U.S. Treasury Secretary Bessent, and negotiations with allies and trading partners are ongoing. The dealmaking is coming fast and furious from many trading partners, and the worst outcomes for global trade are likely to be mitigated as a result. That is not to say tariffs are meaningless or should be ignored, but they are likely to be avoided by many friendly countries. China will not be one of those. President Trump has already threatened escalation with China above and beyond the original announcements, due to retaliation. A tit-for-tat dynamic would be far from beneficial for either side. This dynamic is, however, a hallmark of the Trump Administration.

Looking past Liberation Day, the next steps by the Administration will be much more market friendly. Deregulation and taxes are next on the agenda, and some policies could be rapidly implemented at the agency level and across a variety of industries. The extension of the Tax Cuts and Jobs Act and the potential for incremental tax cuts for the middle class—a significant campaign promise—would be beneficial for sentiment. Not only investor sentiment, but also for the consumer. Importantly, the majorities in the House and Senate allow for changes to the tax code, which must be done with some sense of urgency. Some sticking points are emerging around the budget proposals, and debates and concerns over spending and deficits are not going away. These are not insurmountable, and horse trading should conclude (at some point), allowing for clarity around the final product.

We are watching developments closely but do not see significant market shocks emanating from April 2. Markets will ruminate and fluctuate on shifts in policy as the announcements and rhetoric translate from social media to reality. The cadence of the execution matters, and many of the “least positive,” e.g., tariffs, are now complete or nearly complete. The “most positive,” e.g., tax changes, remain on the horizon.

“The ‘most positive’ developments remain on the horizon.”

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