Starting tomorrow, the United States will implement reciprocal tariffs on other nations.

That oversized printout represented a seismic protectionist shift in US policy.

Very quickly after the announcements, we started seeing other world leaders talking about potentially negotiating or retaliating.

It's definitely the biggest shock to the global trading system that we've seen since World War II.

Trump's tariff wrecking ball careens through the markets.

Not Liberation Day, but Obliteration Day.

Whose throat do I get to choke if this proves to be wrong?

There's only a few events that rank up there with the kind of losses that we've seen in US financial markets in particular.

Major global indices nosedived, including the S&P 500, the FTSE 100, the Nikkei 225 and Germany's DAX.

Over a handful of days, business leaders and investors piled pressure onto the administration amid plummeting markets and palpable fears of a global recession.

Then, just hours after the highest tariffs went into effect on April 9th...

President Trump announces a 90-day pause on reciprocal tariffs for all countries except China.

Most countries would only be taxed 10%, but the tariff was going even higher on China, the world's second biggest economy.

So what now? How is all this meant to work in the long term?

And what could happen when a new 90-day clock stops ticking?

In 1986, teenage Ferrari enthusiast Ferris Bueller took an eponymous day off school and skipped a lecture that included a prescient warning for Donald Trump.

The Hawley-Smoot Tariff Act, which... anyone?

Raised tariffs in an effort to collect more revenue for the federal government.

Economists love to tell the lesson about Smoot-Hawley when it comes to the lessons of protectionism.

There was a law enacted in 1930 where tariffs were applied on all of the US's major trading partners.

The outcome was very much unintended.

It did not work and the United States sank deeper into the Great Depression.

Now, that was around here.

And you can see that historically, the average tariff the US imposed on imports has trended downwards.

There's a reason for that.

Coming out of World War II, the move started to say, if we trade with each other, we won't shoot at each other.

And that model persisted until we are where we are today.

But Trump's policies would take us back here.

And you need to increase the scale of this chart to see the rates that could be facing Vietnam, or Cambodia, or of course, China.

Let's get to why.

First, to revitalise American manufacturing.

More than 6 million fewer people work in manufacturing today than did in 1979.

Trump doesn't like that.

His tariffs are intended to make it harder to sell into the US, paving the way for local companies to fill the gap.

He does view the rise of China in global trade and Chinese manufacturing as being really one of the things that has accelerated and driven the decline of manufacturing in the US.

The president has this ideology and a vision for the American economy and the American worker that dates back to those glory days of automaking and steelmaking and wants to revitalise those in a new way.

There are predictions that China will so dominate global manufacturing in 2030 that it will have almost half of the world's industrial production capacity.

The US's, meanwhile, will have gone from 25% down to about 11%.

And once those manufacturing jobs are gone, they're very hard to bring back.

There are something like 500,000 vacancies in the manufacturing sector right now.

Those are jobs that employers can't fill right now.

So there's big questions about whether or not there's enough people in America to go back to work in many of these factories.

Nonetheless, Trump wants to reopen factory doors to help rebalance trade deficits with the rest of the world.

The trade deficit is very simple.

It is the imbalance between what I buy from you and you buy from me.

You have probably an immense trade deficit with your grocery store or your barber or the local movie theatre.

Or consider coffee.

We don't produce much coffee in the United States.

We drink a lot of coffee in the United States and that means we import a lot of coffee.

And there is an enormous trade deficit when it comes to coffee.

Across all goods, the US has a massive deficit with China.

It looks like this.

The blue line shows the total value of exports from China to the US since 2000.

It's grown to hundreds of billions of dollars a year as Americans snapped up cheap goods.

But it's out of whack with what the US exports to China look.

This orangey-red line shows growth but nowhere near to the same levels.

Trump cares a lot about those kinds of imbalances.

He looks at those and says, if you have a trade surplus with me, I'm losing and you're winning.

And he wants those to be at least balanced if not tilted back in America's favour.

And that includes impoverished countries like Lesotho.

It included unpopulated islands like the Heard and McDonald Islands with which the US has an immense trade deficit.

Those islands are populated only by penguins.

And then there's China.

The president came into office on January 20th.

The golden age of America begins right now.

And within a couple of weeks, there were 20% tariffs on everything coming into the US from China.

And then the trade war between the US and China escalated.

Trump's tariffs first went to 54%.

China this time hit back quite fast and strong, imposing the same 34% tariff rate on all US products entering the country.

So Trump imposed an additional 50% tariff, bringing the total duty on Chinese imports to 104%.

That means a doubling of the price at the border for anything that comes into the United States from China.

China said it would retaliate again.

China is raising tariffs on US goods to 84%.

And the increases kept coming, leading everyone to ask, where does this end?

Well, temporarily in a 90-day pause on the most extensive tariffs.

What changed his mind was the bond market and watching the head of J.P. Morgan on TV predicting recession.

But he didn't budge on China, which produces many components for things America makes.

We have seen some auto factories shut down temporarily while they try and work out the costs of these new tariffs.

We are going to see more of that in the United States.

Trump has another goal with tariffs – raise revenue.

Government revenue raised using tariffs is meant to offset the cost of tax cuts, including a reduction in the corporate tax rate, which the Trump administration says will incentivise US companies to build and hire more.

Many of Trump's officials have talked about all of the revenue that they're expecting to get from these import tariffs, and that's to address the growing debt in the US and also to create space for the tax cuts that the administration are also trying to negotiate.

For instance, to extend income tax cuts approved during his first presidency, and maybe reduce the corporate rate even more, while also expanding tax breaks by exempting tips and social security earnings.

It's going to cost trillions and trillions of dollars.

The problem with that is that tariffs tend to be a pretty inconsistent source of revenues, because if you raise the cost of imported goods, people tend to buy fewer imported goods.

And that means that revenues go down over time.

So maybe it's time we explain how tariffs are actually paid.

Tariffs are an import tax.

They are paid by importers when a good lands at the border in the United States.

So let's take a smartphone.

If it's worth $100 when it lands at the port of Los Angeles, and there's a 50% tariff on smartphones from China, let's say, well, then there's an extra $50 that gets added to the price.

That $50 is paid initially by the importer.

And then economists have found that usually those importers tend to pass on most of the cost to consumers.

When you go through this whole scenario, what you find time after time is that tariffs just raise the cost for consumers.

Trump's third goal for his tariffs is to use them as a tool of diplomacy.

Maybe you've heard him talk about fentanyl and immigration, subjects of executive orders that have figured into his negotiations with Mexico, Canada and China.

His announcement of a pause on April 9th looked like that tool of diplomacy in action again.

There are imbalances.

There have been imbalances building for years and years.

And if he can thread the needle of applying tariffs on countries without crashing economies, he has a chance to achieve what he's trying to achieve.

So in the short term, Trump is really going to be looking for deals with their trading partners.

So some concessions on what he views to be unfair trade practices by key trading partners would be viewed as a success.

If things go according to plan for Donald Trump, the economy will go through a short slowdown.

Inflation won't rise that much.

But then in a quarter or two, the jobs will start rolling in, the investments will start rolling in.

And those trade balances will start to level out.

And what if things don't go according to plan, as the world's economists seem to expect?

Markets surged on the return of the Trump put.

But what happens after the sugar high, or at the end of this 90-day pause?

The worst case scenario is that the US and the world go into a recession, and that that is extended, and that we get trade barriers go up all around the world, that we trade less with each other, and that you get more instability in the world.

Which brings us back to what we discussed earlier, the Smoot-Hawley tariffs in the 1930s.

This time around, that's what's got markets agitated in terms of the amount of trade that's covered.

These are much bigger than the Smoot-Hawley tariffs of 1930.

If you have the same effects this time around, that's going to mean a lot of turmoil in the world.

It's going to be bad for not only the US economy, but the global economy.