2025 has been a rollercoaster. But for financial markets, one day stood out as the defining moment that divided 2025 into, “before,” and, “after”: Liberation Day.
The Day the Market Froze
On April 2nd, President Donald Trump announced sweeping tariffs against nearly every foreign economy. A blanket 10% tariff applied to all imports, even from places like the Heard and McDonald Islands, which have no permanent residents, and up to 50% for specific countries like Lesotho, Cambodia, and Vietnam. The reaction was immediate. Stocks cratered, risk assets sold off, and confidence evaporated almost overnight. Why such a sharp response? Tariffs themselves aren’t new; countries use them all the time. But this felt different, and for investors, it raised an unsettling question: was this another 2020-style shock in the making, or just a temporary scare?
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Let’s begin.
A Fast Crash and a Fast Rebound
The Liberation Day selloff was brutal. The market fell roughly 18% over 35 days, with 12% of that drop coming in just four trading sessions between April 2nd and April 8th. And then, just as quickly, it all reversed.
On April 9th, at 9:37 a.m., Trump posted a “Truth” saying, “This is a great time to buy.” By 1:18 p.m., he announced a 90-day pause on tariffs. The market staged its best single-day rally since 2008, and over the following months surged more than 30%. Wall Street declared victory. Volatility sank, SPACs made a bizarre comeback, and valuations reached levels not seen since the dot-com bubble. To many, the crisis seems like it’s over.
But Is It Really?
Kai Wu, founder and CIO of Sparkline Capital, wrote a wonderful piece about how to invest during trade wars1. I asked him why the initial round of tariffs had surprisingly little impact on economic activity. Kai explained that the tariffs have had little visible effect on the market because they’ve been overshadowed by an entirely different force driving growth: the massive surge in AI-related capital expenditure. He noted that major technology companies (Microsoft, Google, and Amazon among them) are committing trillions of dollars to build out AI data centers and infrastructure, and that this spending boom has been a key driver of recent GDP and corporate earnings growth. “Roughly half of the GDP expansion over the past two quarters can be traced back to these AI investments and their multiplier effects across the economy.” In that context, tariffs have simply been drowned out; the magnitude of AI-driven investment has acted as a counterweight to any drag from trade policy.
At the same time, Kai warned that the broader China trade dynamic represents a real and ongoing threat. Regardless of who wins the next election, he argued, geopolitical tensions between the U.S. and China are unlikely to fade and future administrations will still have to confront them. The “laissez-faire” era of trade, as he put it, “is over.” Whether through tariffs or other means, economic friction with China is likely to persist, and investors need to recognize that this structural shift will shape markets for years to come. Even if today’s AI boom masks some of those pressures, the underlying trade conflict remains unresolved and could resurface as a destabilizing force once the market’s focus shifts back from technology to fundamentals.
Even with the pause, tariffs didn’t vanish. JP Morgan estimates that the effective U.S. tariff rate still sits nearly 15.8%, up from just 2.3% before Liberation Day2. And new threats keep surfacing—most recently, a proposed 100% tariff on China. Whether this is a tactical negotiation move or a lasting economic shift, tariffs have become a blunt policy weapon.
The Lesson That Lingers
The Liberation Day crash may feel like a distant memory now, but its story isn’t likely finished. Tariffs take time to ripple through supply chains, inflation data, and earnings reports. The calm we’re seeing today could be temporary pause before the next adjustment. Whether this is the recovery or the intermission is unclear. But the takeaway is simple: The Liberation Day crash may have ended, but the tariffs of today are likely to affect the market of tomorrow.
- Wu, Kai. How to Invest Amid Trade Wars. 2025. Sparkline Capital. https://www.sparklinecapital.com/post/investing-amid-trade-wars ↩︎
- J.P. Morgan Global Research. US tariffs: What’s the impact on global trade and the economy?. 2025. https://www.jpmorgan.com/insights/global-research/current-events/us-tariffs#:~:text=While%20global%20growth%20is%20still,the%20drag%20on%20global%20growth ↩︎
About the Author: Jose Ordonez
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