Trump’s reciprocal tariffs likely to face stronger retaliation

The President of the United States, Donald Trump, imposed ‘extremely high reciprocal tariffs,’ effective from April 5—and in some cases, April 9—on trade partner countries, including both allies and adversaries. While declaring a national emergency to enhance the United States' competitive edge, he claimed that such drastic measures were necessary to protect the nation's sovereignty and strengthen national and economic security. Announced on the occasion of ‘Liberation Day,’ the tariffs are expected to provoke a similar response from U.S. trade partners, boost regional trade, and create inflationary pressure on the U.S. economy, at least in the short term.

“Large and persistent annual U.S. goods trade deficits driven by the absence of reciprocity in our trade relationships and other harmful policies like currency manipulation and exorbitant value-added taxes (VAT) perpetuated by other countries. These deficits have led to the hollowing out of our manufacturing base; resulted in a lack of incentive to increase advanced domestic manufacturing capacity; undermined critical supply chains; and rendered our defense-industrial base dependent on foreign adversaries,” said a statement from the White House.

The tariffs
President Trump announced to impose a 10 percent tariff on all countries. However, higher reciprocal tariff was imposed on individualized countries with which the United States has the largest trade deficits. All other countries will continue to be subject to the original 10 percent tariff baseline. These tariffs will remain in effect until such a time as President Trump determines that the threat posed by the trade deficit and underlying nonreciprocal treatment is satisfied, resolved, or mitigated.

The highest tariff was announced on Cambodia to the tune of 49 percent, followed by Laos 48 percent, Madagascar 47 percent, Vietnam 46 percent, and Myanmar 46 percent. Merchandized exports from India are subject to 26 percent import duty for entry into the United States. President Trump refuses to let the United States be taken advantage of and believes that tariffs are necessary to ensure fair trade, protect American workers, and reduce the trade deficit.

Sources: United States of America, and Polymerupdate Research

Modifications and exemptions
The White House statement also contains modification authority, allowing President Trump to increase the tariff if trading partners retaliate or decrease the tariffs if trading partners take significant steps to remedy non-reciprocal trade arrangements and align with the United States on economic and national security matters.

Some goods will not be subject to the present reciprocal tariff include: steel / aluminium articles and autos/auto parts already under import duties, copper, pharmaceuticals, semiconductors, and lumber articles, bullion and energy and other certain minerals that are not available in the United States. For Canada and Mexico, the existing fentanyl/migration orders remain in effect, and are unaffected by this order.

This means United States Mexico Canada Agreement (USMCA) compliant goods will continue to see a ‘nil’ tariff. However, non-USMCA compliant goods will see a 25 percent tariff. Additionally, and non-USMCA compliant energy and potash will see a 10 percent tariff. In the event the existing fentanyl/migration orders are terminated, USMCA compliant goods would continue to receive preferential treatment, while non-USMCA compliant goods would be subject to a 12 percent reciprocal tariff, the statement added.

Rationale
The current global trading order allows those using unfair trade practices to get ahead, while those playing by the rules get left behind. In 2024, the US trade deficit in goods exceeded US$ 1.2 trillion, an unsustainable crisis ignored by prior leadership. The White House statement added, ‘Made in America’ is not just a tagline, it’s an economic and national security priority of this administration.

The President’s reciprocal trade agenda means better-paying American jobs making beautiful American-made cars, appliances, and other goods. These tariffs seek to address the injustices of global trade, re-shore manufacturing, and drive economic growth for the American people. Reciprocal trade is ‘America First’ trade because it increases its competitive edge, protects the sovereignty, and strengthens national and economic security.

These tariffs adjust for the unfairness of ongoing international trade practices, balance chronic goods trade deficit, provide an incentive for re-shoring production to the United States, and provide foreign trading partners with an opportunity to rebalance their trade relationships with the United States.

Trade anomalies
According to internal estimates, U.S. companies pay over US$ 200 billion per year in value-added taxes (VAT) to foreign governments—a ‘double-whammy’ on U.S. companies who pay the tax at the European border, while European companies don’t pay tax to the United States on the income from their exports to the U.S.

The annual cost to the U.S. economy of counterfeit goods, pirated software, and theft of trade secrets is between US$ 225 billion and US$ 600 billion. Counterfeit products not only pose a significant risk to U.S. competitiveness, but also threaten the security, health, and safety of Americans, with the global trade in counterfeit pharmaceuticals estimated at US$ 4.4 billion and linked to the distribution of deadly fentanyl-laced drugs.

This imbalance has fuelled a large and persistent trade deficit in both industrial and agricultural goods, led to offshoring of the domestic manufacturing base, empowered non-market economies like China, and hurt America’s middle class and small towns. President Biden squandered the agricultural trade surplus inherited from President Trump’s first term, turning it into a projected all-time high deficit of US$ 49 billion.


DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com