What are the reciprocal tariffs Trump is promising?

After promising to unleash “the big one”, President Donald Trump signed a measure Feb. 13 directing his administration to propose a round of so-called reciprocal tariffs that could remodel America’s trading relationship with the world. If exports from a multitude of countries to the world’s biggest economy end up being taxed more heavily, there’s a risk of higher inflation in the US and slower economic activity everywhere else. Howard Lutnick, Trump’s nominee to lead the Commerce Department, said the proposals could be ready by the start of April, reports Bloomberg.

What are reciprocal tariffs?

The term “reciprocal”, when used in the context of trade, usually refers to measures taken by both parties to ensure fairness in bilateral commerce. In recent decades, that has typically meant lowering trade barriers. In the US, the Reciprocal Trade Agreements Act of 1934 marked the end of an era of American protectionism and allowed the US and partner countries to negotiate lower tariffs on each others’ goods.

Trump and his advisers argue that the practices of many American trading partners put their own exporters at a competitive advantage over US businesses, at the expense of American manufacturing. During the first Trump administration, Commerce Secretary Wilbur Ross proposed that the US jack up levies to match partner countries’ own import taxes. Under that “ideal” trading system, he said, the US would only lower those rates when other countries did.

How would reciprocal tariffs work?

New import taxes are to be customized for each US trading partner, according to a copy of a memo distributed by the White House. The goal is to offset not just a trading partner’s own tariffs on US goods but also other factors deemed to put American manufacturers at a disadvantage, such as subsidies to businesses that are seen as unfair, regulations, value-added taxes (VATs), exchange rates, and lax intellectual property protections.

These so-called “non-tariff barriers” are hard to quantify, creating an enormous challenge for the Office of the US Trade Representative and the Commerce Department, which are tasked with proposing the new levies on a country-by-country basis.

Reciprocal tariffs could be imposed in a number of ways: They could be applied to specific products, to entire industries, or as an average tariff on goods arriving from a specific country. Theoretically, the US could lower tariffs in some cases, for purposes of reciprocity, though this seems unlikely given Trump’s protectionist stance.

How do reciprocal tariffs differ from Trump’s original plan of universal tariffs?

During his election campaign, Trump threatened to impose a universal tariff of 20 per cent on imports from all countries except China. Originally, he threated tariffs of 60 per cent on imports from China but has since imposed levies of 10 per cent on them. A reciprocal policy would be more tailored to the specifics of each trading relationship. It implies that some countries -- particularly those with few barriers for US companies -- may be largely exempt.

Which countries stand to lose out?

If the US matches the specific levies placed by countries with the highest tariffs on US goods, emerging market nations would be hit hardest. India, Argentina and much of Africa and Southeast Asia would be most exposed, according to Bloomberg Economics, which compared tariff rates between the US and its trading partners.

But much of the world could be affected, given that the Trump administration is looking at a more general definition of trade “fairness.” The US has an overall trade deficit, meaning it imports more from other countries than they import from the US, and Trump sees this imbalance as fundamentally unfair.

He repeatedly has lamented value-added taxes on US-made goods sold in other countries, particularly the European Union’s 15 per cent VAT. Japan also has a VAT, known as a consumption tax.

Is there room for negotiation?

Precedent suggests that Trump likes to shock first, negotiate second. During his first term as president, he provided tariff exemptions to some nations and on some imports after lobbying by domestic industries that would have been affected by the levies. China avoided an additional round of tariffs in 2019 after promising to purchase billions more in key US goods including agricultural commodities. In early February, Trump delayed the imposition of 25 per cent tariffs on imports from Mexico and Canada after the two US neighbours agreed to take tougher measures to combat migration and drug trafficking at the border.

Still, there are signs that Trump will be tougher on trade during his second term. A case in point: he initially signalled that Australia may be exempt from steel and aluminium tariffs he plans to levy on all nations. Later, his trade adviser threw cold water on that by saying Australian aluminium was “killing” the US industry.

Are reciprocal tariffs fair?

It depends on whether your definition of “fair” is flexible enough to account for

countries at various stages of economic development. Emerging markets tend to place higher tariffs on imports of certain goods to protect domestic industries and jobs -- chief among them agriculture -- until they reach some level of competitiveness globally. —News Desk