How to Celebrate Liberation Day

A guide to the festivities—and the work that remains.

“Well,” I said with a sigh, “I guess we’d better hope we’re right about tariffs.” It was shortly before 6:00 PM on Wednesday, April 2, 2025, and most members of the American Compass team had gathered in our Washington office. Two others joined by speakerphone as they walked back from the Rose Garden, where President Donald Trump had just delivered his Liberation Day remarks and signed an executive order, Regulating Imports with a Reciprocal Tariff.

Along with the rest of the world, we at Compass were trying simultaneously to make sense of the specifics and assess the full implications. What were the variables in the U.S. Trade Representative’s formula for calculating reciprocal tariffs, what was the legal authority, which tariffs were replacing or being layered atop others? Was this the end of the World Trade Organization, how would other countries respond, how would the market?

Wholesale rejection of the broken status quo, emphasis on addressing global imbalances, and widespread use of tariffs were precisely the path that our organization advocated. Some of the executive order’s specifics aligned closely with our own proposals for a global 10% tariff and a rate closer to 50% for China. Others were entirely novel. We had always emphasized the importance of rates codified in legislation and phased in gradually, which would create certainty and promote investment while minimizing cost. These tariffs would snap into place immediately, but could be modified at any time by the president. The journey ahead would be long, but we were on our way. “The new policies announced by President Trump today confirm the end of the disastrous WTO era,” I said in a statement released around 6:30, “and lay the groundwork for a new set of arrangements in the international economy that prioritize the national interest and the flourishing of the nation’s working families.”

The next few weeks were a whirlwind for anyone engaged in the policy or business of trade. I made the case for substantial revisions to the White House approach and was pleased with the modifications announced on April 9. And I argued repeatedly that, while the program could surely be improved, its premise was correct, its approach could work, and it deserved a chance. Most economists, meanwhile, lost their minds—suffering from what Harvard University’s Jason Furman would later call “tariff derangement syndrome.” For them, the issue was not this tactic or that, but the heresy of using tariffs at all, or indeed believing any problem existed with globalization in the first place.

Adam Posen, president of the Peterson Institute for International Economics, had previously described the Trump proposal for just a 10% global tariff as “horrifying” and “lunacy.” Mid-way through April, he predicted a 65% chance of recession and no chance of GDP growth reaching 2%, while warning that “inflation is coming” and “tariff-hit industries will see rising domestic prices and falling output, employment and growth.” Larry Summers called the policies “a major stagflationary shock” and predicted a recession and millions of jobs lost. Mark Zandi predicted a recession and a two-percentage-point increase in inflation. “While my track record of predicting recessions is terrible—like most economists’—a recession seems likely,” said Paul Krugman.

Only one of those observations proved anywhere near correct: Krugman’s acknowledgment that economists usually get these things wrong. And so too here. Far from a recession, growth accelerated. Inflation turned lower. The unemployment rate held in a narrow range and losses in manufacturing employment slowed. New orders for capital goods rose. After long periods of decline, manufacturing productivity and output turned around.

Of course, tariffs do not bear sole responsibility for any of these developments. But one can safely say that the arguments against them, both in terms of unacceptable short-term costs for the wider economy and perverse effects for the goal of reindustrialization, have failed the test of contact with the real world.

Just as important, the tariffs do not represent the entirety of the reindustrialization agenda. They surely remain President Trump’s favorite tool in the policy belt, but his administration has also embraced industrial policy for strategically critical supply chains, from semiconductor subsidies to critical-mineral price floors to cross-border alliances for shipbuilding and restrictions on share buybacks for defense contractors.

The tariffs themselves have in some cases become permanent features of the landscape, channeling demand and capital toward domestic production. But in others, their function has been to reset the groundwork and provide a foundation for the broader architecture of new trade deals that will now govern the majority of the nation’s trade and facilitate unprecedented levels of foreign direct investment. (Friday’s very special Collector’s Edition of Understanding America provides a comprehensive overview.)

So as we mark Liberation Day’s first anniversary, we celebrate not only the policy changes and early returns, but also their contribution to two shifts in the broader economic consensus that will shape policymaking and markets in the years to come. The first of these shifts regards globalization, which had long been considered an irresistible force about which the citizens of a democratic republic could and should have no say. “We are fortunate that, thanks to globalization, policy decisions in the U.S. have been largely replaced by global market forces,” Alan Greenspan once remarked. “Protectionism is simply not an option because globalization is irreversible,” said President Bill Clinton, calling it “the economic equivalent of a force of nature—like wind or water.”

Nope. As Secretary of State Marco Rubio said in a 2019 speech at Catholic University of American that increasingly appears a seminal political document of our era, “Our nation does not exist to serve the interests of the market. The market exists to serve our nation and our people.” Indeed, markets have proven extraordinarily adept at functioning well within the constraints that we choose to impose. We do have a choice and, increasingly, we are making it.

The second shift follows from the first. The high priests of economics have long played the Wizards of Oz, presenting the world with an imposing façade and claiming a higher knowledge to which common sense and human values must yield. But now we can all see behind the curtain.

What the economists actually had were abstract models, built upon poor assumptions, designed to give their preferred results. Their project had become a manipulative one, passing off naked political preference as “science.” Krugman infamously advised “ridicule” for people skeptical of the free trade consensus and warned a fellow economist not to concede its weaknesses lest he give “ammunition to the barbarians.”

Nope. Now Krugman has no choice but to confess that his faith in “self-correcting” trade deficits was “naïve.” Summers lost ground in a debate on the question, Should the United States shift from the free trade approach it has supported since World War II in favor of higher tariffs?, at Harvard Business School of all places. “I’m supportive of across the board 15% tariffs. There, I said it,” tweeted philanthropist John Arnold in February. “It has industrial policy and revenue raising benefits and didn’t lead to the harms that economists predicted.”

That term “industrial policy” has gone from curiosity to battleground to table stakes. “World Bank Embraces Industrial Policy, Abandoning Three Decades of Stigma,” headlined the Wall Street Journal in mid-March. “I think you have to use industrial policy now,” said JPMorgan CEO Jamie Dimon the following week.

While it is gratifying to have been proved right in these early debates about the goals and effects of tariffs and the broader project that Liberation Day represents, it is also far too soon to declare victory. Tariffs are a means, not the end; they are intended to help induce the capital investment in the American industrial base that has been sorely lacking. Only through investment will innovation occur, output surge, and reindustrialization achieve its goals—for national security, for the economy, and for workers, their families, and their communities.

The investment picture at this point remains mixed. As our newly published Atlas on The Tariff Tally explains:

It is far too early to draw conclusions about whether the investment payoff will come. The enormous, credible, but mostly still pending commitments from countries like Japan, Korea, and Taiwan, and from firms in industries from aluminum to semiconductors to pharmaceuticals to critical minerals, suggest that an absence of investment already underway may say little about investment likely to occur. On the other hand, a year is enough time to begin deploying capital—certainly on expansions. Detractors might fairly ask why the signal isn’t stronger.

One likely issue is the instability that has accompanied trade policy, with frequent changes in tariff levels and deal terms, and without the congressional action that would solidify a commitment to greater protectionism. President Trump’s continued interest in a grand bargain with China, perhaps even including substantial Chinese investment into the American economy, also discourages large private-sector investments and encourages instead an attitude of wait-and-see.

These are the issues on which policymakers and analysts must focus in year two. For policymakers: Can the Trump administration stabilize the tariff regime, strengthen relationships with trading partners, align China policy, and work with Congress to codify key elements? Can it bring foreign investment commitments to fruition, move from plans to action in strategic sectors, and establish permanent financing mechanisms? Can it make progress on the supporting infrastructure, from permitting to energy to workforce? For analysts: does all this translate to capital expenditures out the door, shovels in the ground, equipment on trucks?

The United States has made tremendous progress over the past year in unwinding the policy errors of globalization, constructing a ladder that can reach back out of the hole those errors created, and stepping onto the first rungs. Few still believe the hole is a wonderful place to live, or that no ladder exists. But without strategic clarity, we could slip backward. Without focus on the next steps, especially priming the pipeline of talent into the industrial economy, the going will be slow.

And then there is the war with Iran, which is already detracting from priorities on the home front. If there is a silver lining to our Middle Eastern misadventure, it is confirmation that tariff opposition from places like the American Enterprise Institute and the Wall Street Journal editorial board was never really about economic growth or affordability. It was just a matter of priorities: rebuilding the American industrial base may not make the cut, but bombing a country to smithereens apparently does, even as it expends munitions the atrophied industrial base cannot so easily replace. Unless the Trump administration is able to extricate itself soon, and especially if it instead chooses to plunge deeper, the ladder may simply snap.

Let us hope not, and do all within our power to prevent that result. If we can keep climbing, we will have much to celebrate next year as well—perhaps the sunlight on our faces, a long-sought whiff of fresh air.