Donald Trump's 'liberation day': What are reciprocal tariffs, and who pays them?

US President Donald Trump is set to announce sweeping new "Liberation Day" tariffs on Thursday, a move he claims will boost domestic manufacturing and punish unfair trade practices.However, economists warn that the measures could damage the US economy, strain global alliances, and lead to higherconsumer costs."April 2, 2025, will go down as one of the most important days in modern American history," White House press secretary Karoline Leavitt said on Tuesday, adding that the tariffs would take effect immediately. The new levies target a wide range of imports, including automobiles, steel, aluminium, pharmaceuticals, and computer chips. Trump has also imposed tariffs on nations importing oil from Venezuela and hinted at broader future measures.Donald Trump's tariff announcement - live updatesDespite concerns over economic downturns and declining consumer sentiment, the administration remains confident. Trade adviser Peter Navarro suggested the tariffs could generate $600 billion annually—the largest tax increase since World War II. Treasury Secretary Scott Bessent said the tariffs might be negotiable, but the White House has yet to confirm details.Reciprocal tariffs are import taxes imposed on foreign goods to match the tariffs those countries place on American exports. Trump has long insisted that foreign nations bear the cost of these levies, but in reality, importers—mostly US companies—pay them. These costs are typically passed on to consumers in the form of higher prices.Tariffs are intended to protect domestic industries by making imported goods more expensive, thus encouraging local production. However, they often provoke retaliation. The European Union, for example, responded to Trump’s previous tariffs on steel and aluminium by imposing taxes on US products, including bourbon and motorcycles. China, too, has targeted American exports like soybeans and pork.Despite Trump’s claims that tariffs will create jobs, previous measures have had mixed results. A study by economists from MIT, Harvard, and the World Bank found that Trump’s first-term tariffs did not significantly boost US employment. While tariffs on imported steel were meant to protect American jobs, employment in the steel industry remained stagnant at around 140,000 workers.Democratic lawmakers argue that Trump’s tariffs serve primarily to fund tax cuts for the wealthy. Senate Minority Leader Chuck Schumer called the measures "a smokescreen for tax breaks that disproportionately benefit billionaires." Even some Republicans acknowledge the potential economic turbulence, with House Speaker Mike Johnson admitting, "It may be rocky in the beginning."Economists predict a significant impact on American households. The Budget Lab at Yale University estimates that a 20% universal tariff would cost the average household an additional $3,400 to $4,200 per year. Trump argues that the policy will revitalise manufacturing and reduce the federal deficit, but many remain sceptical.