President Donald Trump is taking his enthusiasm for tariffs to a new level. His latest move? Announcing a policy of “reciprocal tariffs” that would tax imports from other countries at the same rate they tax imports from America.
Trump believes “the playing field is tilted against U.S. companies” said The Associated Press. Many countries charge higher import taxes than America does on their goods, and the president believes the imbalance undergirds “America’s massive and persistent trade deficits.” Fair’s fair, the argument goes. “If they charge us,” Trump said to reporters, “we charge them.”
But his decision will upend the global trading system. A reciprocal tariffs policy “disrupts the way that things have been done for a very long time,’” said Richard Mojica, a trade attorney.
What is the point of reciprocal tariffs?
Reciprocal tariffs are partially about pushing “major powers like China and the European Union to lower their duties” on U.S. imports, said Deutsche Welle. Trump also believes that tariffs generally will reduce the trade deficit and help grow American manufacturing. Economists say, however, that a trade deficit often benefits the United States. With a trade deficit, countries take the income and invest it back in American stocks and bonds, keeping interest rates low and convincing American businesses and consumers “to borrow and spend more.”
Is a VAT a tariff?
Most countries — though not the U.S. — levy a “value-added tax” on consumption, said Forbes. Trump believes that approach also exacerbates the trade deficit. “A VAT tax is a tariff,” he said, indicating that such taxes will be part of calculating the reciprocal tariffs. The problem? That’s “not true,” said Forbes.
Tariffs tax imports, while VATs (like sales taxes) are “simply a tax on all domestic consumption, regardless of where the good or service is produced.” In any case, a VAT tax may not be to blame for trade deficits. One example: America has a trade surplus with the United Kingdom, which has a 20% value-added tax.
What are the criticisms of reciprocal tariffs?
Trump’s move “amounts to outsourcing U.S. tariff policy to other countries,” economist Douglas A. Irwin said at The Wall Street Journal. Tariffs are also “enormously” complicated. The American tariff schedule has 13,000 line items, and the United States has trade with 200 countries. “Is Washington ready to impose and manage 2.6 million individual tariff rates?” America should “not have stupid tariff policies just because other countries have stupid tariff policies,” Irwin said.
How might American consumers be affected?
Some types of products “would be hit much harder than others,” said CNBC. The U.S. imports $600 billion worth of goods from the European Union alone, including pharmaceuticals — like the weight-loss drugs Ozempic and Wegovy — as well as vaccines, hearing aids and artificial joints. Other industries will be hit, but the drug and medical industry “will experience among the most significant tariff impacts by sector.”
What’s next?
The Commerce Department is expected to have a plan to implement the reciprocal tariffs by April 1.