Trump Liberation Day tariffs and stock market reactions: new insights from global analysis

What the paper says

Purpose This paper aims to investigate how global equity markets responded to the USA’s imposition of reciprocal tariffs on April 2, 2025, known as the “Liberation Day,” and whether countries facing elevated tariffs reacted more strongly than those facing baseline 10% tariffs. Design/methodology/approach This study uses an event-study framework using daily stock index data from 77 countries, with 49 countries are subject to baseline 10% tariffs, 27 countries are facing higher rates and the USA’s own market. Abnormal returns are estimated using the historical mean model, a preferred approach over the market model to mitigate potential endogeneity arising from global benchmark inclusion. Cumulative abnormal returns (CARs) are computed across six event windows, and statistical significance is assessed via nonparametric and parametric tests. Findings Results reveal significant negative CARs post tariffs announcement across the majority of the sample, exceeding −15% in some countries, including the US market with over −10%. Furthermore, countries facing higher tariffs did not exhibit stronger or more significant reactions than those under the 10% baseline. Further analysis explores potential transmission mechanisms, showing that countries’ trade exposure and financial integration with the USA systematically shape the magnitude of their market responses. Originality/value This study extends the existing literature on the impact of policy shocks on equity markets by examining global equity market reactions to the Liberation Day tariffs.