A Forward-Looking Lesson One Year After Liberation Day

Thursday marks one year since President Donald Trump shocked observers worldwide with his sweeping, oddly concocted, "Liberation Day” tariffs. Their size, scale and bizarre basis also surprised markets as US and global stocks tumbled -12.1% and -11.3%, respectively, in just five trading days.^[i] Plenty has happened in this realm since, and with some unknowns remaining after the Supreme Court’s February ruling, many remain focused on the saga, fearing fallout. However, stocks have shown they are largely over tariff news now, with all the attention over the past year sapping most of the surprise power. For good or ill, tariff news likely won’t sway stocks much.

Tariffs are economic negatives, full stop. They make doing business more difficult and mean higher prices for companies and households—precisely why the early shock and uncertainty surrounding them moved markets. Mind you, it was tariffs’ surprising scale—not the levies themselves—that stunned stocks. Citing 1977’s International Emergency Economic Powers Act (IEEPA), Trump announced a universal 10% tariff on all US imports, with additional country- and product-specific surcharges of up to roughly 50% on certain trade partners. This exceeded analysts’ previous expectations and anything his team signaled on 2024’s campaign trail.

To us, the rationale was bizarre and hard to comprehend: Trump imposed reciprocal tariffs on “unfair trade” grounds, but he calculated each tariff rate by dividing America’s goods trade deficit with each country by its total imports into the US. But in effect, the US slapped levies on several nations we barely trade with and some we run overall surpluses with once services are considered. Uncertainty skyrocketed and stocks reeled.

Yet as these fears came to a crescendo on April 9, Trump announced a 90-day pause on all reciprocal tariffs except China’s, sending markets surging.^[ii] This was the first burst of reality beating expectations.

More followed. After a short bout of volatility, stocks continued rallying on April 21—returning to breakeven by May 12 and climbing from there as deals emerged, exemptions were announced, ultimately successful court challenges were filed and more.^[iii] The mitigating factors we anticipated following Liberation Day played out, and stocks climbed to new highs throughout the year even as tariff talk abounded.^[iv]

All the attention the initial shock received made markets pre-price worst-case scenarios like lightning (much as they are the Iran war today). And they moved on. So when Trump threatened to slap an additional 50% tariff on essentially all European Union imports and a 25% levy on foreign-made smartphones on May 23, 2025, stocks fell just -0.7%, soon reverting to rising.^[v]

Markets didn’t soar after Trump extended his original Liberation Day pause through August, either (this move superseded the aforementioned EU threat). He announced the extension on July 7, yet markets actually fell the next day and ended the week up … 0.3%.^[vi] Similarly, stocks sold off -2.7% on October 10, when Trump threatened an additional 100% levy on all Chinese imports.^[vii] But they got over it quickly, breaking even just six trading days later—and rising 4.4% through that month’s end.^[viii] This year’s Greenland-related tariff threat on January 17 didn’t sting markets for long, either. So, in sum, brief bouts of short-term volatility followed tariff announcements post-Liberation Day. But reactions came and went with increasing speed.

We also saw this after the Supreme Court struck down Trump’s reciprocal and blanket tariffs in February. Most market participants probably saw this as bullish news, but US stocks mostly shrugged, rising just 0.7%.^[ix] Surprise moves markets most, and most surprise power here has faded—in both directions. SCOTUS’s February decision was widely expected. As was the Trump administration’s subsequent workaround—more than a month before the decision, Trump officials hinted at a “backup plan” if tariffs were struck down.^[x] There simply wasn’t any shock power left.

Keep all of this in mind as Trump’s replacement tariffs face their own legal challenges. As things stand, the replacement tariffs are set at 10% with Trump threatening to raise them to 15%. Trump based this on Section 122 of the Trade Act of 1974, which lets presidents impose tariffs of 15% or less for up to 150 days, after which Congress must pass an extension. Yet here, too, legal questions remain and challenges could be successful. Section 122 implies tariffs may be necessary if there is a balance-of-payments crisis, but this has never been used previously and makes little sense today. America has no balance of payments crisis. This isn’t the trade deficit—it includes that and financial flows. The latter offsets the former.

Even if Trump’s replacement tariffs are shot down, we doubt it moves the needle much. Trump has already launched studies permitting him to enact tariffs on more durable and tested legal grounds. Hence, early last month, Treasury Secretary Scott Bessent suggested tariffs will be back at rates Trump enacted under IEEPA in five months.^[xi] So for all the sturm und drang, we likely wind up right where we were at 2025’s close. This is noise, not news, for stocks. Nothing market moving, in our view.

To be clear, tariffs are still economic negatives. But for stocks, surprise is the key. And today, these lack the surprise power to wallop markets. Nor do trade deals or tariff pauses hold enough relief to send stocks skyward. A year on from Liberation Day, markets have moved on. Investors should, too.