Trump pushes for reciprocal tariffs as ‘the only fair way’ to trade

US President Donald Trump has announced plans to impose reciprocal tariffs on other countries, branding them “the only fair way” to conduct trade. Analysts warn that this move could result in broad tariff hikes, particularly impacting emerging economies like India and Thailand and adding strain to US-EU trade relations.

What are reciprocal tariffs?

Tariffs are taxes imposed on imported goods from another country. During his election campaign, Trump vowed to enforce a “tariff for a tariff, same amount” policy, ensuring that the US matches any trade barriers imposed by other countries.

In a statement on Sunday, Trump confirmed that he would make a detailed announcement on reciprocal tariffs by Tuesday or Wednesday, emphasizing that “every country will be reciprocal.”

According to Goldman Sachs analysts, the US could increase tariff rates to match the rates that other countries impose on American goods. However, this strategy could be complicated, as tariff structures vary by product and country.

Currently, the US has a relatively low average tariff rate of 2.7% (as of 2022). However, some sectors—such as apparel, sugar, and pickup trucks—already have higher tariffs, making a direct product-by-product approach more complex.

Who will be impacted?

The introduction of reciprocal tariffs could result in higher tariffs for countries that impose high duties on US imports.

According to JPMorgan analysts, emerging economies like India and Thailand—which have higher average import tariffs than the US—are most likely to be affected.

Trump has previously called India “a very big abuser” in trade policies, criticizing its high tariff rates on US goods. This week, National Economic Council Director Kevin Hassett reinforced this claim, stating that India’s tariffs create barriers to US imports.

However, some poorer countries impose high tariffs as a necessary revenue source, since they lack the regulatory resources for non-tariff trade barriers.

Meanwhile, countries with Free trade agreements (FTAs) with the US—such as Mexico, Canada, and South Korea—are unlikely to be affected, according to Goldman Sachs estimates.

What are the complications?

It remains unclear whether Trump sees reciprocal tariffs as an alternative to his proposed universal 10-20% tariffs or as a separate policy altogether.

One major concern is that the US could also attempt to equalize non-tariff barriers, such as regulatory protections and value-added taxes (VATs).

According to Goldman Sachs, adjusting for VAT differences could increase the average US tariff rate by 10 percentage points, creating major disruptions in global trade. JPMorgan analysts suggest that Trump’s move may be a direct response to high VAT rates in the European Union (EU), potentially escalating US-EU trade tensions.

What is the goal?

The primary objective behind reciprocal tariffs is to increase US leverage in trade negotiations.

However, Jeffrey Schott, a senior fellow at the Peterson Institute for International Economics, warns that uncertainty surrounding tariffs acts as a tax on business, discouraging investment and trade.

For US allies like the EU, trade negotiations under Trump’s tariff policy may extend beyond economics to geopolitical concerns, including Ukraine’s ongoing war with Russia and US energy exports, such as liquefied natural gas (LNG).

Is this a two-way street?

Despite Trump’s argument that reciprocal tariffs ensure fairness, the US does not have the world’s lowest tariffs.

According to Scott Lincicome of the Cato Institute, the US ranks in the middle among wealthy industrialized nations when it comes to tariff levels.

If Trump’s system is strictly based on average tariff rates, true reciprocity could mean that the US would need to lower tariffs on goods from certain countries rather than just increasing them, further complicating trade negotiations.