Khan Capital | April 2025
Key Takeaways
- Trump’s Liberation Day tariffs on 2 April 2025 imposed a universal 10% baseline rate plus higher “reciprocal” tariffs, pushing the US effective tariff rate to its highest level in a century.
- The S&P 500 fell approximately 12% in four days, shedding $6.6 trillion in the largest two-day loss in history, before a 90-day pause triggered a 9.52% single-day rally.
- Despite the recovery, the tariff regime failed to deliver its stated objectives: manufacturing jobs declined by roughly 100,000 and trade deficits widened.
- Over $170 billion in IEEPA tariffs collected were ruled unconstitutional by the Supreme Court in February 2026, creating years of legal and refund uncertainty.
- The political consensus in favour of trade protectionism has survived the judicial reversal, meaning investors must permanently price in elevated US trade policy uncertainty.
On the afternoon of 2 April 2025, President Donald Trump stepped into the White House Rose Garden and signed Executive Order 14257, invoking the International Emergency Economic Powers Act to impose the most comprehensive set of import tariffs in over a century. He called it “Liberation Day.” What followed was one of the most violent episodes of market destruction since the onset of the COVID-19 pandemic, as trillions of dollars in equity value evaporated in a matter of days, the US effective tariff rate was pushed to levels not seen since the Great Depression, and the entire framework of post-war global trade was thrown into question.
Within four days, the S&P 500 had fallen approximately 12%. The Dow Jones Industrial Average shed nearly 4,600 points. The Nasdaq Composite recorded its worst session since March 2020. The scale, speed, and apparent arbitrariness of the tariff regime caught investors, corporate treasurers, and trading partners alike almost entirely off guard.
| Date | Event | Market Impact |
|---|---|---|
| Apr 2 | Liberation Day announcement; EO 14257 signed | S&P futures -3.9%; Nasdaq futures -4.7% |
| Apr 3-4 | Tariffs sink in; 10% baseline takes effect Apr 5 | S&P -12% in 4 days; $6.6tn lost (worst 2-day ever) |
| Apr 7 | Further selling; VIX spikes to 45.31 | Worst 3-day loss since Black Monday |
| Apr 9 | Trump announces 90-day pause on reciprocal rates | S&P +9.52% (best day since 2008) |
| May 12 | US-China temporary deal; tariffs cut to 30% | S&P turns positive YTD by May 13 |
| Jun 27 | S&P and Nasdaq close at all-time highs | Full recovery complete |
| Feb 20, 2026 | Supreme Court strikes down IEEPA tariffs 6-3 | $170bn+ in refunds owed |
What Happened: The Anatomy of a Trade Shock
The executive order declared the United States’ persistent goods trade deficit a national emergency under IEEPA. On the basis of that emergency declaration, Trump imposed a universal baseline tariff of 10% on virtually all imports, effective 5 April. Higher “reciprocal” tariff rates, targeting major trading partners, were scheduled to take effect on 9 April. China faced a cumulative rate of 54%, Cambodia 49%, Vietnam 46%, and the European Union 20%. Even allies like the United Kingdom, Argentina, and Brazil were hit with the 10% floor.
The administration described the tariffs as “reciprocal,” asserting they mirrored barriers faced by US exporters in foreign markets. Trade analysts immediately rejected this characterisation. The tariff calculations appeared to be derived not from actual foreign trade barriers but from a crude formula based on bilateral trade deficits, a methodology that bore no relationship to established trade economics.
The use of IEEPA as the legal authority was itself unprecedented. No president had previously used this 1977 emergency powers statute to impose tariffs. The legal basis rested on stretching the word “regulate” in IEEPA’s authorisation to encompass the power to impose duties, a reading that many constitutional scholars immediately challenged, and which the Supreme Court ultimately rejected in February 2026.
The Market Carnage: Four Days That Shook the World
Immediately after the Rose Garden announcement, S&P 500 futures dropped 3.9%. Nasdaq-100 futures fell 4.7%. On 3 April, the Nasdaq Composite lost 1,600 points, its worst day since the pandemic crash. By the close on 4 April, over $6.6 trillion had been wiped out in the largest two-day loss in history.
The selling was indiscriminate. Roughly six out of every seven stocks in the S&P 500 fell. The VIX spiked to 45.31, the highest close since the 2020 pandemic crash. Bond markets told a more nuanced story, with the 10-year yield fluctuating between 4.0% and 4.6% as competing pressures of recession risk and tariff-driven inflation battled for dominance.
The 90-Day Pause: The Biggest Single-Day Rally in Years
On 9 April, Trump announced a 90-day pause on the higher “reciprocal” tariff rates for approximately 80 countries. The S&P 500 surged 9.52%, its largest single-day gain since 2008. The Dow rose 7.87%. The Nasdaq climbed 12.16%, its second-best session in history.
The first post-Liberation Day trade deal came on 8 May, with the United Kingdom. A temporary US-China deal followed on 12 May. By 13 May, the S&P 500 had turned positive for the year. By 27 June, both the S&P 500 and Nasdaq closed at all-time highs.
What the Market Is Misunderstanding
The effective tariff rate remains historically elevated. Despite exemptions and bilateral deals, the US average effective tariff rate was pushed above 17%, the highest since the Great Depression. By December 2025, half of all imports had been exempted, but the baseline protectionist architecture remained in place.
The manufacturing renaissance has not materialised. Approximately 100,000 manufacturing jobs were lost in 2025, not gained. Trade deficits actually widened rather than shrinking, and the labour expertise and cost structures needed for onshoring simply do not exist at scale.
The legal foundation was always fragile. The Supreme Court ultimately struck down the IEEPA tariffs in February 2026 in a 6-3 ruling, leaving over $170 billion in collected duties subject to potential refund and creating years of legal and accounting uncertainty for importers.
Structural Interpretation: The End of Free Trade Orthodoxy
Liberation Day’s most enduring impact may be the political consensus it revealed. Both parties now compete on protectionist credentials. For global markets, this represents a permanent increase in the baseline level of US trade policy uncertainty. The administration’s immediate pivot to Section 122 tariffs after the Supreme Court ruling confirmed that the appetite for protectionism transcends any single legal authority.
Implications for Investors
Supply chain diversification is no longer optional. Companies with concentrated supply chain exposure to any single country face unacceptable policy risk.
Consumer-facing companies with import-heavy cost structures face sustained margin pressure that the headline tariff rate understates.
The “buy the dip” reflex on tariff news worked in 2025 because the administration blinked. Investors may not wish to assume this pattern will repeat in future trade confrontations.
Treasury and fixed income markets face structural pressure from tariff-driven inflation expectations, which complicate the Fed’s easing path.
Conclusion
Liberation Day will be remembered as the moment the post-war free trade architecture was dealt its most severe blow. The IEEPA tariffs may have been struck down, but the political appetite for protectionism, the precedent of executive tariff action, and the structural supply chain disruptions they caused will endure long after the last refund cheque is issued.
Sources: Wikipedia (Liberation Day tariffs), NPR, Wikipedia (2025 Stock Market Crash), Newschannel5 / Scripps News, Supreme Court Opinion
Related Reading
Liberation Day marked the most dramatic escalation of US trade policy in over a century. For the initial tariff moves that preceded it, see Trump’s Tariff Blitz. For the stunning reversal that followed, see The 90-Day Tariff Pause: Markets Whipsaw on Policy Reversal. For the legal challenge that ultimately struck down these tariffs, see Supreme Court Strikes Down IEEPA Tariffs. For the original trade war, see Trade War 1.0. The Phase 1 deal that preceded the second-term tariff escalation is examined in US-China Phase 1.
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