Trump's Reciprocal Tariffs: What They Are and Who They Impact

Former President Donald Trump’s proposed "reciprocal tariffs" on U.S. trading partners are expected to lead to intense negotiations that might result in lower trade duties. However, analysts caution that this strategy could also provoke retaliatory actions.

"This applies to every country—when they treat us fairly, we reciprocate," Trump stated to reporters.

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What Are Reciprocal Tariffs?

Tariffs are taxes imposed on imported goods from foreign nations. As for reciprocal tariffs, Trump pledged during his campaign: "An eye for an eye, a tariff for a tariff, in the exact same amount."

A White House official, speaking anonymously on February 13, clarified that this policy would apply to both strategic rivals like China and long-time allies such as the European Union, Japan, and South Korea.

"Each of these countries is exploiting us in different ways, and the president views this as a lack of reciprocal trade," the official stated.

Under this approach, the U.S. could increase tariffs on imports to match the duties imposed by other countries on American goods. In addition to tariff rates, the administration will consider non-tariff barriers, including value-added taxes (VATs).

When Will These Tariffs Take Effect?

At this stage, Trump’s directive instructs the commerce secretary and U.S. trade representative, in coordination with the treasury department and other officials, to examine the issue and recommend appropriate measures.

Howard Lutnick, Trump’s nominee for commerce secretary, suggested on February 13 that tariffs could be implemented as early as April 2, following a review of the matter.

The White House official noted that the administration would first analyze nations with the largest trade deficits or the most significant imbalances with the U.S. The process could take weeks or months, with tariffs potentially being justified under national security concerns, unfair trade practices, or emergency economic measures.

Christine McDaniel, a senior research fellow at the Mercatus Center, remarked, "At this point, it appears more like an invitation to negotiate."

Which Countries Could Be Most Affected?

JPMorgan analysts predict that reciprocal tariffs could lead to substantial tariff hikes on emerging economies that currently impose high duties on American products.

In unveiling this policy, the White House specifically mentioned Brazil and India. For instance, while the U.S. levies a 2.5% tariff on ethanol imports, Brazil imposes an 18% duty on ethanol from the U.S.

The European Union was also singled out for its 10% tariff on imported automobiles, compared to the U.S.’s 2.5% duty. Trump criticized the EU’s trade policies, calling them "absolutely brutal." However, analysts point out that the U.S. imposes higher tariffs on certain items, such as light trucks.

What Challenges Could This Approach Face?

Using reciprocal tariffs to counteract non-tariff barriers like VATs might significantly raise the average effective tariff rate, according to Goldman Sachs analysts.

The Tax Foundation has noted that VATs operate on a border-adjusted basis—meaning they provide tax rebates on exports while taxing imports. "Although VATs may seem to favor exports and disadvantage imports, a border-adjusted VAT is trade-neutral," the organization stated in a recent report.

This could complicate trade negotiations. Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics (PIIE), warned that other nations might retaliate if the U.S. aggressively imposes tariffs.

"If major economies respond in kind, more countries might feel compelled to follow suit," he told AFP. Additionally, higher U.S. tariffs would likely increase costs for importers.

What Is the Goal?

According to Obstfeld, Trump’s policy appears to be designed to encourage nations to favor the U.S. in trade agreements.

"For example, if Brazil reduces tariffs on U.S. automobiles but maintains them for all other foreign auto imports, this would be a win for the U.S.," he explained.

Some analysts suggest that the mere threat of tariffs creates uncertainty, which can be used as a negotiation strategy. However, this uncertainty can also negatively impact both American and global businesses.

The White House did not rule out the possibility of implementing a broad, uniform tariff at a later stage.