Unpacking Liberation Day - What Business Leaders Must Do Now
A C-Suite Quick Take
It was always likely that the return of Donald Trump to the Oval Office would have significant implications for the domestic and global business landscape. What remained unclear was just how disruptive the new Trump 47 administration would prove to be.1 That question was decisively answered last week when the White House rolled out the most sweeping tariff package in U.S. history on what it dubbed “Liberation Day.”
Trump 47’s new tariff framework brings the Weighted Average Tariff Rate (WATR) to an unprecedented 25.5%, well above the 20% level set by the Smoot-Hawley Tariff Act of 1930.2 Smoot-Hawley, of course, is infamous for exacerbating the Great Depression by triggering a global trade war. Now, business leaders everywhere are left asking: will Trump’s “Liberation Day” usher in a similar era of economic contraction, or will it serve its intended purpose; leveling the playing field for American businesses long burdened by asymmetric global trade?3
Unpacking “Liberation Day”
The headline figure - a 10% universal tariff - only scratches the surface. The plan’s real bite lies in its so-called "reciprocal" rates, ostensibly calculated as half the rate of tariffs and non-tariff trade barriers levied by foreign governments. The immediate impact on global markets was both swift and severe. Within the first 48 hours of the announcement, the S&P 500 dropped by 9%, and analysts such as JP Morgan repegged the probability of a recession at 60%.4
But beyond the market reaction, the underlying methodology raises questions as the formula isn’t truly reciprocal. Instead, it calculates the U.S. tariff as the trade deficit with a given country divided by the total imports from that country, halved - or set to 10% at a minimum. Moreover, the calculation excludes services, which make up roughly 35% of U.S. exports and consistently generate a surplus, reflecting U.S. strengths in sectors like finance, technology, and education.
The economic rationale behind the formula is also unclear, as a trade deficit with a given country is influenced not only by tariffs and non-tariff trade barriers, but also by other factors, such as comparative advantage, supply chain dynamics, international capital flows, and geography. But it does help explain some unexpected outcomes, such as the African nation of Lesotho facing a 50% tariff on its diamond and textiles exports to the U.S.
Equally concerning is a critical miscalculation in the administration’s economic logic. The model inflates assumed foreign tariff rates fourfold, due to an apparent misreading of a 2021 American Economic Review article by Cavallo et al.5 The administration mistakenly uses the elasticity of retail prices in response to tariffs (roughly 0.25) instead of the elasticity of import prices (closer to 0.945). Correcting for this error would reduce Lesotho’s tariff rate on goods to 13.2%; a material difference with significant consequences for the country’s economic welfare as well global trade relations and supply chains in general.6
Where Do We Go from Here?
Most companies have already implemented basic responses: activating crisis teams, accelerating shipments, conserving cash, and reevaluating operations footprints.7 But in a landscape as volatile, uncertain, complex, and ambiguous as this, these actions, though necessary, are insufficient. Here’s why:
Narrow focus on direct tariff effects: Many organizations are fixated on the immediate cost impacts, rather than the broader economic ripple effects. These include potential retaliatory tariffs from China, the EU, and others; Federal Reserve responses; shifts in currency values; and fluctuations in consumer confidence.
Underestimating indirect functional impacts: Take the U.S. auto industry, for example. With inventories of 60-90 days (or more) across dealer lots and ports, automakers might not feel pricing pressure until late summer. But they and their captive finance arms must coordinate any mid-year pricing changes carefully. As we've seen with COVID’s residual value spikes and Tesla’s dynamic pricing missteps, mid-cycle adjustments can wreak havoc on end-of-lease valuations and new-versus-used car market dynamics.8
Forecasts ≠ Scenarios: Many companies are modeling likely outcomes but stopping short of true scenario planning. Real scenarios aren’t just forecasts but plausible futures that drive materially different strategic, financial, and operational decisions. Moreover, in this case, the scenarios are driven as much by the (personal) motivations of different stakeholders as general macroenvironmental trends.9 For example, what if China imposes punitive countermeasures? What if Democrats gain control of Congress in the midterms? What if a global economic slowdown reshapes consumer demand patterns?10
Ignoring volatility’s upside: The administration’s tariff motivations are multifaceted, including reducing bilateral trade deficits, raising revenues, re-industrializing the U.S., and/or simply as negotiation leverage. While the risks are evident, there are also opportunities. Firms that prepare to pivot quickly may find themselves better positioned to acquire distressed assets or fill emerging market gaps.
A Pragmatic Approach
While Trump 47’s tariff plan has undoubtedly upended the playing field, it also marks a clear starting point for company leaders to act decisively. A five-step approach can provide much-needed clarity and structure:
Rapid Risk/Opportunity Assessment: Don’t aim for perfection. Within 3-4 weeks, conduct high-level assessments across product lines, regions, and functions. Focused cross-functional workshops and targeted data analysis can generate actionable insights quickly.
Develop a Detailed Baseline Scenario: Treat the current Liberation Day framework as your reference case. But go beyond internal functions, such as supply chain, and consider how it affects industry structure, your position within the competitive landscape, competitor and other stakeholder (re)actions, and long-term strategy.
Stress Test the Baseline: At what threshold do your assumptions break down? Would a 5% universal tariff alter your footprint strategy? What about 20% or even 35%? How would your largest competitors react? What are your best customers and channel partners planning? Model the 2-4 plausible outcomes that would force you to make significantly different strategic, financial, and operational decisions.
Increase Flexibility: Break large investments into modular bets (real options), seek co-investments to share risk, and evaluate diversification opportunities. Can you support critical customers during this period to deepen loyalty and win long-term share?
Build a Portfolio of Responses: Include no-regret moves (e.g., hedging forex exposure), reactive measures (e.g., rerouting supply chains), and proactive plays (e.g., new product lines targeting tariff-resistant categories).
None of this requires genius—just discipline. But as we've learned time and again—from the financial crisis to the pandemic—the post-crisis winners are usually those who act decisively while others freeze. "Liberation Day" may mark the start of a new era that, for many companies, represents not just risks, but also opportunities for those willing to adapt and potentially even reinvent themselves. The rules may have changed. But the game itself is just beginning.
Sources:
1Strategic Planning for U.S. Election Scenarios,” Jullens & Robinson, C-Suite (7/24/2024)
2Be Careful What You Wish For,” Hunter, Economist Intelligence Unit (4/4/2025)
3Regulating Imports with a Reciprocal Tariff to Rectify Trade Practices that Contribute to Large and Persistent Annual United States Goods Trade Deficits,” Executive Order, The White House (4/2/2025)
4Global brokerages raise recession odds; J.P.Morgan sees 60% chance,” Siddarth, Reuters (4/5/2025)
5Tariff Pass-Through at the Border and at the Store: Evidence from US Trade Policy,” Cavallo et al, American Economic Review (March 2021)
6” President Trump’s Tariff Formula Makes No Economic Sense. It’s Also Based on an Error,” Grinth & Veuger, American Enterprise Institute (4/4/2025)
7” Preparing for Trade Disruptions,” Jullens & Robinson, C-Suite (12/10/2024)
8Frank McCleary, Partner, Automotive and Manufactured Goods, Arthur D. Little (4/3/2025)
9” Prestige vs. Dominance: Leadership Matters in the U.S. Presidential Election,” Jullens, C-Suite (11/1/2024)
10” Seeing Around Corners: How Scenario Wargaming Can Help C-Suite Executives Navigate Trump’s Tariffs,” Jullens, C-Suite (3/13/2025)
Brilliant advice!