VoxTalks Economics S9 Ep7: How exchange rates responded to tariffs
Jan 28, 2026
Giancarlo Corsetti, economist at the European University Institute and CEPR known for work on international macro and exchange rates. He discusses the surprising 6% dollar drop after major tariff announcements. He explores how expected tariffs with swift retaliation trigger financial market repricing, link movements in Treasuries, equities and FX, and what that means for dollar dominance and policy.
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Standard Textbook Tariff Logic
- Imposing tariffs typically raises demand for domestic goods and leads to real appreciation of the home currency.
- Tariffs reduce demand for foreign goods, requiring a relative price adjustment that strengthens the domestic currency.
Liberation Day Dollar Drop
- On Liberation Day the dollar fell about 6% against the euro very quickly after a dramatic tariff announcement.
- The event was a regime-shifting announcement of large tariffs with widespread anticipated retaliation across the globe.
Retaliation Can Reverse FX Effects
- When tariffs are met with retaliation the net exchange-rate effect can reverse compared with unilateral tariffs.
- Retaliation shifts the comparison from 'tariff only' to 'tariff plus retaliation', often offsetting or overcompensating currency appreciation.