Saturday 22 / February / 2025
Washington DC: US President Donald Trump has ordered his officials to develop reciprocal tariffs on imports to the United States, keeping to an "eye for an eye" election campaign promise on matters of world trade.
"I have decided for purposes of fairness, that I will charge a reciprocal tariff, meaning whatever countries charge the United States of America, we will charge them. No more, no less," Trump told reporters in the Oval Office.
The statement is the latest in a line of tariff announcements by the president, including a new 10% tariff on imports from China that took effect last week and the prospect of new tariffs on imports of steel and aluminium from March.
Trump has also threatened 25% levies on imports from neighbours Canada and Mexico, which have been paused for a month to allow for further negotiations.
Why does Trump want to impose reciprocal tariffs?
Trump has a longstanding belief that the US is being treated unfairly in global trade. He argues that many countries impose higher tariffs on US goods than the US does on theirs, creating an imbalance.
For example, India levies tariffs that are typically between 5 and 20% higher than the US on 87% of imported goods, according to data from Global Trade Alert, an organisation which assesses commerce policies.
Trump has said he wants to match the levy on US imports that other countries apply to US products.
As well as forcing major powers like China and the European Union to lower their duties, the president believes reciprocal tariffs will boost his "America First" economic policy by narrowing the country's trade deficit while improving the competitiveness of US manufacturers.
"This is every country, and essentially, when they treat us fairly, we treat them fairly," Trump told reporters Thursday when signing proclamations ordering the reciprocal tariffs.
However, economists have pointed out that the US benefits from having large trade imbalances with the rest of the world, as the dollar — the global reserve currency — is used in most trade, which offers major tailwinds to the US economy.
Countries use those dollars earned in trade to invest back into the US, often in government bonds, stocks and real estate. This keeps US interest rates lower, and allows US businesses and consumers to borrow and spend more.
How will Trump's plan work?
US federal authorities have been given 180 days to identify countries that impose higher tariffs than the US and recommend tariffs on a country-specific basis, according to a White House memo.
However, the tariffs could take effect before that deadline. Trump's nominee to lead the US Commerce Department, Howard Lutnick, has said the proposals could be ready by April 2.
The countries with the highest trade deficits are to be targeted first, including close US allies.
Once approved, the reciprocal tariffs could be invoked for reasons of national security, unfair trading or under emergency economic powers.
A tally of existing tariffs by Bloomberg Economics suggests that emerging markets would be hardest hit, including India, Argentina, much of Africa and Southeast Asia.
The White House singled out Brazil on Thursday, pointing to a 2.5% ethanol tariff imposed by the US, versus an 18% rate levied by the Brazilian government.
Trump also wants to target other factors he says put US producers at a disadvantage, including subsidies, regulation, value-added taxes (VAT), currency devaluation and lax intellectual property protections.
What is the likely impact of reciprocal tariffs?
Economists have warned that the tariffs previously announced by Trump will raise consumer prices for imported goods to the US, stoking inflation.
After a bout of decades-high inflation in the wake of the COVID-19 pandemic, US inflation has fallen sharply. But in January, the consumer prices index rose to 3% — the highest rate in six months.
S&P Global Ratings has estimated a one-time rise of up to 0.7% in US consumer prices as a result of the tariffs on China, Canada and Mexico, if the levies take full effect. Until they are formally announced, it remains unclear what impact the reciprocal tariffs could have on US inflation.
While some US domestic producers and retailers will benefit from Trump's tariff strategy, they will also face higher import costs for raw materials, as well as supply chain disruptions.
US exporters could also be hurt by retaliatory measures initiated by trading partners. Some governments, including the EU and China, have already announced countermeasures, while others are expected to follow suit.
How will countries try to avoid these new tariffs?
Trump's use of tariffs has ratcheted up fears of a global trade war, and has created deep uncertainty across many industries and in many countries.
The announcement of reciprocal tariffs is set to spark a new flurry of negotiations that could bring reductions in levies imposed on US exports.
India, for example, has already cut tariffs on dozens of goods in anticipation of Trump's threat. Indian Foreign Secretary Vikram Misri said after a meeting between Trump and Prime Minister Narendra Modi on Thursday in Washington that a deal to resolve the trade concerns could be made within the next seven months.
Taiwanese President Lai Ching-te called Friday for a "win-win scenario" in talks with Washington, "not just to ensure benefit to the US but also to ensure that Taiwan's industries have room for growth."
The European Commission, the EU's executive arm, has labeled the reciprocal tariffs as "a step in the wrong direction" and said Brussels would "react firmly and immediately against unjustified barriers to free and fair trade."
Bernd Lange, who heads the European Parliament’s trade committee, told the Financial Times last week that EU officials are willing to cut car tariffs to US levels and buy more US liquefied natural gas (LNG) and military equipment if the bloc can avoid measures against its exports.
The European Union, for example, levies a 10% tariff on imported vehicles, while the US rate is just 2.5%. However, US tariffs on pickup trucks and commercial vehicles are far higher than the EU.
Under current World Trade Organisation rules, more than 160 member countries mostly apply tariffs without discrimination, although there are some exceptions, such as free trade deals and customs unions.
Trump's plan could also see other major powers negotiate tariffs on a country-by-country, reciprocal basis, upending decades of rules-based trade.
