Trump Announces Reciprocal Tariffs Policy
President Donald Trump issued a memorandum February 13 directing a rapid review process to determine a schedule of country-specific “reciprocal tariffs” for all U.S. trading partners based on each partner’s perceived unfair trade and economic practices.
In a statement posted to the White House website, Trump wrote, “On 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. In other words, they charge us a tax or tariff and we charge them the exact same tax or tariff.”
Trump directed the secretary of commerce and the U.S. trade representative to work with the Department of Treasury and the Department of Homeland Security secretaries to provide assessments for each trading partner, other countries’ tariffs on U.S. exports, “unfair” taxes imposed on U.S. companies, exchange rates policies and “any other unfair practices.”
Trump said in a press conference that he will consider value added taxes (VATs), widely used throughout the European Union, to be equivalent to tariffs, and VATs will be included as trade barriers in reciprocal tariff calculations.
The memo directs the Office of Managment and Budget (OMB) to assess “all fiscal impacts” of the proposed actions and submit a report to the president within 180 days. The United States currently has one of the lowest average tariff rates in the world, averaging between 2 and 3 percent. By contrast, the European Union has average tariff rates of about 5 percent, China’s are around 7 percent and India’s are about 15 percent—and higher on some goods from the United States. About 70 percent of all goods currently enter the U.S. duty-free.
The new reciprocal tariffs would not apply to 20 countries with which the U.S. currently has free trade agreements in force: Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, South Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru and Singapore.
Trump has already announced that Canada and Mexico, which are on that list, are going to be separately hit with 25 percent tariffs, as well as China, which will have an additional 10 percent imposed on top of already existing tariffs. Oil and gas from Canada will also have a 10 percent tariff rate imposed.
Trump cited a national security rationale of securing border traffic and drug smuggling under the International Emergency Economic Powers Act (IEEPA), which grants trade and tariff powers to the president in a declared national emergency, to justify those tariffs.
How many of these new tariffs will take effect and when remains an open question. The White House fact sheet ends by acknowledging, “The prospect of country-specific tariffs creates significant logistical and supply chain issues for U.S. importers that source from around the globe.” Countries, though, “will be given a chance to negotiate agreements with the U.S.,” which could mean dozens of separate negotiations between the United States and its trading partners.
