The News
US President Donald Trump ordered his administration to assess all US global trading partners and plan for “fair and reciprocal” tariffs that take into account whether countries charge the US import duties.
Speaking in the Oval Office Thursday, Trump called US allies often “worse than our enemies” on trade, stressing that, “if you build your product in the United States, there are no tariffs.”
The president stopped short of ordering immediate tariffs on world countries. Instead, his proposal signals a more “ambitious task that will shatter the rules of the global trading system,” The New York Times wrote.
Analysts predict that such reciprocal tariffs would hit developing countries hardest, including India, Brazil, and Vietnam. In 2022, the average US tariff on imports from India was 3%, while India’s weighted average rate on US goods was 9.5%, CNN reported.
India’s Prime Minister Narendra Modi, who is set to meet Trump in DC on Thursday, is expected to offer the president concessions to avert any duty hikes, including tariff cuts in at least a dozen sectors, Reuters reported.
SIGNALS
Trump allies hope new tariffs can fund tax breaks
Tariffs currently make up roughly 2% of the federal revenue, although people close to the Trump administration hope increasing rates could help pay for planned tax cuts. Trump himself has endorsed this plan, saying at his inauguration that “Instead of taxing our citizens to enrich other countries, we will tariff and tax foreign countries to enrich our citizens.” Still, Republicans in Congress have warned that pushing tariffs through could be a challenge: “Everybody’s got their district and companies that are affected by tariffs, good and bad. I doubt he would think he could get it through,” Rep. Ralph Norman, R-S.C., told Reuters. Trump may at least avoid a direct fight on Capitol Hill, a historian noted in Foreign Policy, stressing that the presidency has “immense powers” when it comes to tariffs.
Dealmaking begins as US shifts away from post-WWII trading system
A reciprocal tariff system of the kind mooted by Trump would represent a dramatic transformation in US trade policy. The US has long advocated for standardized global tariff rates and the so-called “most favored nation” approach, which holds that countries should treat trading partners equally, Bloomberg reported. Turning away from this model would mark one of the biggest changes in US trade policy since “the creation of the current multilateral trading system” in 1947, a lawyer told The New York Times. The action is expected to spark a flurry of negotiations between Washington and countries that depend on exports to the US, with a White House official suggesting other nations could be offered an opportunity to discuss new trade relationships with Washington.
Will tariffs make Americans better off?
Many economists are skeptical of the idea that tariffs will benefit Americans economically: “Study after study” has shown that the cost of US tariffs levied since 2017 has been passed onto consumers, a report from the Peterson Institute for International Economics argued. Trump admitted that prices could go up “short-term,” but added that “what will go up is jobs. The jobs will go up tremendously.” Yanis Varoufakis, a leftwing firebrand and former Greek finance minister, is one of the few economists outside of Trump’s sphere to come out in support of the plan, calling it “solid — albeit inherently risky.” According to Varoufakis, Trump may believe the dollar has become overvalued, and hopes to shock foreign central banks into letting their currencies appreciate against the dollar, strengthening US competitiveness overseas.