Trump’s Tariffs and Tax Cuts: A Double-Edged Economic Strategy

On April 2, 2025, President Donald Trump announced sweeping tariffs under the International Emergency Economic Powers Act (IEEPA), marking what he called a “declaration of economic independence.” This bold move, aimed at boosting U.S. manufacturing and reclaiming economic sovereignty, has already sent shockwaves through global markets. Investors have been left grappling with uncertainty, as portfolios reflect the turbulence sparked by these measures. Dubbed “Liberation Day,” this momentous shift in trade policy is set to redefine economic dynamics for months to come. As an economics enthusiast, I find myself deeply conflicted about the implications of these actions. In this post, I will share my unfiltered perspective on the potential consequences of this historic decision.

It is no secret that Trump has recently imposed tariffs on over 50 countries — tariffs he proudly describes as reciprocal. And to be fair, there’s some truth to that… if they weren’t so excessive. For example, a U.S.-made car exported to Europe faces a 10% tariff, while a European car entering the U.S. is only taxed at 2.5%.

So why is he imposing these tariffs?

To answer that, it’s important to understand that Trump’s economic plan rests on three main levers:

1. Cutting government expenses — supposedly through figures like Elon Musk, who has vowed to eliminate $1 trillion in waste and fraud. Personally, I see this as fantasy and pure delusion.
2. Cutting taxes — a move I’ll get into later, and one I actually find interesting, if it’s paired with the right policies.
3. Increasing revenue — mainly through deregulation and these infamous tariffs.

Now, these moves will likely lead to more factories and businesses being built in America. But they could also trigger trade wars — as we’re already starting to see, with “enemy” nations forming unlikely alliances in response.

But don’t stress too much — the U.S. is the world’s largest consumer and importer. Pulling itself off the global trade floor would, in theory, hurt its partners more than the American economy itself.

Still, I believe these sky-high tariffs are temporary — part of a tough negotiation tactic.

But what if they’re not? What if they stay this high?
What would the long-term consequences be?

Let’s dive in.

First and foremost, these tariffs are expected to fuel inflation. The increase in sourcing costs — especially for companies heavily reliant on imports — will likely be transferred to consumers in the form of higher prices. Analysts are already projecting a 2% boost to the Consumer Price Index (CPI) in 2025, further intensifying existing inflationary pressures. To give one example, washing machine prices surged by 34% under Trump’s previous tariffs.

That said, it’s not all one-sided. Believe it or not, I’ve recently come across Americans online claiming that some prices — like eggs and gas (thanks to the new Drill baby drill policy) — have actually decreased under Trump. This could suggest there’s more at play than just economic fear.

On the currency front, reduced imports would lower demand for foreign currencies, potentially strengthening the U.S. dollar in the short term. However, if retaliation leads to weaker U.S. exports — which is likely — that initial dollar boost could be offset, and the net impact on the currency might be far less favorable than expected.

Meanwhile, for industries dependent on foreign materials — such as automotive manufacturers — costs will rise as I have mentioned. This could throw off global supply chains that have been carefully refined over decades, forcing companies to scramble for new sourcing strategies.

As I highlighted earlier, these tariffs are already sparking trade wars. China and the EU are preparing retaliatory tariffs of their own. The resulting uncertainty has rattled markets, erasing over $5 trillion from the S&P 500’s total value — a clear reflection of investor anxiety.

As the market experiences such a sharp decline, you might be wondering: Why isn’t the Fed stepping in? The answer is relatively straightforward — unemployment. Jobless rates remain too low to trigger concern or justify intervention just yet. 

So in other words, these tariffs will force Americans to stop buying foreign and start buying American, inevitably driving expansion in the U.S market. 

 Let’s now  move forward to tax cuts, another key component of Trump’s plan:

As you may know, The Tax Cuts and Jobs Act of 2017 lowered tax rates for individuals and businesses, a measure which ultimately leads to internal (domestic) economic growth. However, many of the provisions are set to expire by the end of 2025 — something Trump is aiming to prevent by pushing for their extension. These will stimulate the economy but they will also increase the deficit, requiring more government borrowing and therefore fuel inflation. This extension has not passed yet, but it is safe to say that Congress is paving the way to make it happen. 

To conclude, let’s discuss where to invest your money. After all, it’s during market downturns like these that buying makes the most sense. I’m confident in saying that the market has now hit an attractive “buyable bottom,” especially with the Volatility S&P 500 Index recently surpassing the 40 mark. Think of it as the Black Friday of the economy. I truly believe that any growth stock that has overcome the launch phase is profitable in the long-term (new stocks might not be able to survive the pressures of the current market conditions). But if you are looking to fill your wallet now, I would recommend stocks with limited tariffs exposure, typically the international ones but also consumer staples. 

But remember, if economic data starts showing weaker performance, the administration will definitely pull back on its policies. There’s no doubt about that.