Investors will close out a disappointing March later on Monday, with all major stock indexes tumbling this month on unpredictable trade policy and growing tariff uncertainty. Markets don't like unpredictability and uncertainty, especially ahead of "Liberation Day" on Wednesday, when large-scale tariffs are supposed to go into effect. If a narrower stance is taken, or the policies represent final plans before trade negotiations, stocks could rally in April, especially with the S&P 500 (SP500) and tech-heavy Nasdaq Composite (COMP:IND) down 9% and 14%, respectively, from recent all-time highs.

Snapshot: Taxation, which can be divided into what is "earned," "bought," and "owned," has been a point of contention between the U.S. and its trading partner. While the Biden administration put a bigger focus on what is "earned," like the global minimum corporation tax and digital services tax, the Trump administration has its eyes set on the "bought" part of the equation. This can be further divided into two separate categories: 1) "duties" - which involve fees on goods shipped across borders, and 2) "consumption taxes" - which are usually collected as a sales tax or value-added tax depending on the locale.

While there is a lot of confusion surrounding the second grouping, sales tax and VAT serve the same purpose despite being calculated differently. Sales tax is only paid by the final consumer, with businesses along the supply chain typically receiving exemption certificates, while VAT is calculated at each step of the production cycle, with the final burden also falling on the end consumer as they cannot deduct the inputs like businesses. What makes things sticky is if the percentage of VAT/sales tax is more expensive or cheaper in one region over another, which can result in different final price tags on imported/exported items, along with a slew of other labor inputs and market conditions.

Go deeper: In the U.S., sales tax is collected by the states and not the federal government, making it an ineffective mechanism to govern international trade policy. Instead, President Trump is trying to leverage the use of tariffs, whose power is also consolidated in the executive branch. It makes them an immediate and effective tool that can be utilized at a moment's notice, and can result in direct discussions as opposed to slower trade deals, domestic subsidies, or other things that have to make their long way through Congress. The goal here is to protect American industries, reshore manufacturing, and serve as a source of government revenue, though only time will tell how tariffs will play out for U.S. businesses and the economy.

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