Donald Trump unveiled an overhaul of his dealing relationship with many partners and allies, launching a “fairness and reciprocity program” for trade.
The president signed a memorandum on Thursday ordering his top advisers to propose a “full” approach to addressing the U.S. trade deficit, primarily by raising tariffs to retaliate against taxes, taxes, regulations and subsidies, making Washington consider unfair.
The move is the latest trade in Trump’s first month in office, and follows new taxes threatening tariffs on U.S. North American trading partners and metal imports.
What is a “reciprocal” tariff?
In June 2023, Trump promised that if he wins the election, he would pass a law in Congress that would allow him to match U.S. import tariffs with tariffs imposed by other countries on U.S. goods. His campaign calls it “the eyes of the eyes, the same amount to the tariffs, the same amount”.
The approach taken is more extensive. Officials said they will also impose levies on a “country-by-country basis” basis to retaliate against non-advocacy barriers. They list the EU’s VAT as an example of unfair trading operations, as well as the digital service tax explored or implemented by many European countries.
Everett Eissenstat, a former Trump trade official with Squire Patton Boggs, said regulations from agricultural standards to vehicle weight restrictions Probably in the crosshair.
A White House overview of the plan said the U.S. is “one of the world’s most open economies,” but believes its trading partners “turned their markets shut down our exports.”
The U.S. plan would violate the World Trade Organization regulations, because members must offer the same interest rates to each other unless they have concluded a bilateral or regional trade agreement, the so-called most popular national principle.
Although the United States has long stopped playing a role in WTO rules, the shift to a reciprocal system will mark a sharp start in Washington’s trade policy.
This is also different from Trump’s approach to metal trade, which has imposed a 25% tariff on metals in the United States.
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Which countries and products are most affected?
Japan, India and the EU are the biggest targets of the new measures, while the White House’s profile adds Brazil to the list, a senior official said Thursday.
“Japan’s tariffs are relatively low, but structural barriers are high,” the official said. “India… has the highest tariffs in the world.”
Peter Navarro, senior adviser to Trump’s manufacturing and trade, called EU VAT “poster children” in response to measures that U.S. tariffs will resolve, believing that the EU has offered unfair rebates to its own exporters . EU countries only charge VAT on products sold in the group, regardless of their origin. There is no VAT in the United States, only state sales tax.
“[It] The EU’s tariff rate on U.S. exports has almost tripled, even if it subsidizes EU exports heavily. ” said Navarro.
Trump has previously complained about China, the EU and India, citing a pro-pricing think tank for analysis by the booming American coalition. The White House said Thursday that India imposed 100% tariffs on U.S. motorcycles, while the U.S. was charged a 2.4% tax rate. It also said the EU has blocked shellfish imports in 48 states.
Under the tariffs, analysts at Morgan Stanley found that India, Thailand and South Korea would be most retaliated, and their risk would increase by 4 to 6 percentage points in the weighted average tariff.
Morgan Stanley also found that average tariffs in Japan, Malaysia and the Philippines may be targeted. Barclays analysts added Indonesia and Vietnam to the list.
The EU may suffer, too. It charges 10% on car imports, while the U.S. charges only 2.5%. Cars account for 8% of EU exports to the United States.
The WTO said the U.S. trade-weighted average tariff rate was 2.2%. By comparison, India’s average rate is 12%, with oil seeds, fats and oil rates reaching 177%.
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Can our tariffs be reduced?
White House officials said Thursday that the United States hopes to discuss with countries around the world about the imbalance of the trade environment because of how imbalanced the existing structure is.”
“If the country wants to lower tariffs, the president is happy to lower tariffs,” the official added. But he believes that high tariffs are often less than trade barriers than policies such as taxes.
Scott Lincicome, vice president of the free market CATO Institute think tank, said the real countdown system will reduce tariffs on goods made in the United States on Europe, Mexico, Canada or the United Kingdom, where tariffs are sometimes lower.
“I doubt our tariffs, such as the 25% tariff on light trucks or the tariff on clothing and footwear,” he said.
The United States is also a prolific user of trade defense tools, i.e. urgent measures to deploy tariffs in certain situations, such as during a surge in imports. Washington also ensures that certain subsidies apply only to domestic companies and use regulatory standards to prevent foreign products.
“Many foreign countries do have protectionist barriers to U.S. goods, services and investment, but the United States is not a saint,” Lincolncombe said.
What has Trump done so far?
Trump uses tariffs as a negotiation tool and a way to protect the U.S. industry and opposes the country’s trade deficit. Orders to develop reciprocity tariff plans are listed along with other measures, which usually do not adopt a reciprocity approach.
The president’s threat to impose tariffs on Canada and Mexico has forced both countries to rush to show Washington that they are making meaningful efforts to secure their borders and Stimmy Fentanyl trafficking, according to Trump’s request.
Trump also showed he was willing to impose steep tariffs to protect specific U.S. industries, starting in March, approved all imported blanket tariffs for steel and aluminum. Trump officials said no company or product will be ruled out.
He also posed a threat to impose a 10% tariff on all Chinese imports, a move that hit everyday consumer goods.
In addition to these early actions, Trump ordered his officials to tax foreign countries on U.S. companies, the reasons for the continued U.S. trade deficit and whether the country is manipulating its currency.
How will other countries respond?
Some countries are already in action. India cut its responsibilities this month to cover certain U.S. imports, including Harley-Davidson Motorcycles, a long-time Trump complaint he called “unacceptable.”
Although India is one of the world’s top buyers of Russian oil, Trump announced that the United States will “become the Indian oil and gas in a press conference with Prime Minister Narendra Modi on Thursday Major suppliers”.
He added that he and Modi will have a “long-term difference” in trade negotiations.
The Financial Times reported that EU officials are willing to lower auto tariffs to U.S. levels if they avoid punitive actions on their export measures. Brussels publicly stated that it would buy more U.S. liquefied natural gas.
It is unclear how the EU and the UK respond to major retaliation from their VAT system, which they believe is a core part of the trade and tax system. No other trading partners have raised such a threat.
EU officials told FT they do not think the group will change its regime under U.S. pressure. It successfully defended systematic measures in the 1990s to prevent our measures on the WTO.
So far, the EU has promised “firm and proportionate” retaliation against steel and aluminum tariffs, and the UK says it is unlikely to respond and does not want to cheer on inflation.
China responded to the increase in U.S. tariffs on Monday, with limited countermeasures affecting about $14 billion in imported goods. But compared with the first round of Trump’s trade war, its speech is also relatively limited.
“There is no winner in a trade war or a tariff war,” the Chinese Foreign Ministry said. “We urge the United States side to stop politicizing and weapons to resolve economic and trade issues.”
