First, it's critical to comprehend the regulations governing international trading.
Countries have the right to levy import tariffs as part of their membership in the World Trade Organisation (WTO).
The product being imported may affect such levies.
For example, a country may impose a 25% tariff on cars and a 10% duty on rice imports.
However, when determining the tax they impose on a specific imported commodity, they are not allowed to discriminate among countries under WTO regulations.
For instance, Egypt would be unable to levy a 50% tax on wheat originating from Ukraine but just a 2% charge on wheat originating from Russia.
In international trade, this is referred to as the "Most Favoured Nation" (MFN) concept, which states that the nation applying the tariff must apply the same duty to all.
When two countries negotiate a free trade agreement that covers the majority of their trade, there is an exception. In these situations, they are able to impose no tariffs on goods that are moving between them, but they are still able to impose tariffs on commodities that are coming from all over the world.
Which countries presently impose tariffs?
The majority of nations submit an average external tariff to the WTO, which represents the average tariff rate applied to all imports, even when they have a variety of tariff rates covering different products imports.
In 2023, the US's average external tariff was 3.3%.
That was marginally less than the average tariff of 3.8% in the UK.
Additionally, it was lower than the average tariffs of China (7.5%) and the European Union (5%).
Compared to some of its major trading partners, the average tariff imposed by the United States was significantly lower.
For example, South Korea's average tariff was 13.4%, whereas India's was 17%.
Although US exports to Mexico and Canada are exempt from tariffs due to trade agreements, the US's average tariff was lower than those of these two nations (6.8% and 3.8%, respectively). Similarly, the United States has a free trade deal with South Korea.
However, in general, Trump has good reason to note that certain nations have average import tariffs that are greater than those of the United States.
Additionally, many American exports to those nations are now more expensive due to those tariffs, which may disadvantage US exporters in comparison to exporters in those nations exporting to the US.
What could a reciprocal tariff entail?
Trump said on February 10 that it might entail the US applying the same average external tariff to imports from each country as those countries do.
"If they charge us, we charge them," he said to reporters. We're at 25 if they're at 25. We're at 10 if they're at 10.
This would probably violate the WTO's MFN regulations, which mandate that a country apply the same tariff to specific items regardless of their origin.
It would be against the rules if the US levied a tariff of, say, 9.4% on all commodities entering from Vietnam and 3.8% on all goods coming from the UK (which is the same as their own average external tariffs).
The US may be able to argue that certain retaliatory tariffs against the targeted nation are permitted by WTO regulations if it can demonstrate that the nation was already in some manner violating the organization's regulations.
However, merely enforcing reciprocal tariffs as a rule would probably be illegal.
What about individual commodities subject to reciprocal tariffs?
Another possibility is that Trump might try to match tariff rates on specific commodities imposed by several nations, rather than the average national tariff rates.
For instance, all automobile imports from outside the EU, including those from the US, are subject to a 10% duty.
However, the United States only levies a 2.5% duty on automobile imports, including those from the European Union.
To level the playing field, the US may choose to levy a 10% tariff on EU automobiles.
However, considering the wide variety of items involved in international trade and the various tariff regimes used by the 166 WTO members, it would be a very time-consuming and complicated task to attempt to match duties on every kind of import with every different nation.
The administration's reciprocal tariffs may also be intended to counteract "non-tariff barriers" to trade, including regulations from other nations, domestic subsidies, currency values, and Value Added Taxes (VAT), according to Trump's official policy memo.
While the majority of other countries, including the UK, impose VAT on goods, the United States does not.
This can further complicate the process of creating the tariffs.
Economists concur that domestic laws and subsidies can be significant non-tariff trade barriers, but they maintain that VAT does not fit this description because it is applied to all domestically sold goods and does not, therefore, result in a relative cost disadvantage for US imports.
VAT is not listed as a trade barrier by the WTO.
Would the United States genuinely lower its tariffs?
Theoretically, the US could be forced to reduce certain tariffs rather than raise others if Trump were sincere about precisely matching each country's particular duties.
Compared to certain of its trading partners, the United States imposes higher tariffs on specific agricultural items.
For example, the United States presently levies effective tariffs of over 10% on a large number of milk imports. However, dairy imports from New Zealand, a significant producer of milk worldwide, are duty-free.
Lowering the tariff for milk exporters from New Zealand would probably encounter political opposition from lawmakers in Wisconsin, a swing state, as the US milk tariffs are intended to safeguard US dairy farmers, many of whom are located there.
Similarly, the US auto industry would face difficulties under a truly reciprocal US tariff system based on specific items.
Truck imports, including those from the EU, are subject to a 25% duty in the US.
However, the EU only imposes a 10% tariff on trucks that are imported, including those from the US.
Therefore, in theory, the US would drop its duty here if it reciprocated the EU's levy on imported trucks.
American automakers may be in favour of a reciprocal tariff on EU vehicles, but they may not be in favour of one on EU trucks.
However, Trump clarified on Thursday that some of his proposed tariffs, including those on steel and aluminium, would be "over and above" his reciprocal tariffs, implying that his main goal is not actually true trade reciprocity.
Trump said on February 10 that it might entail the US applying the same average external tariff to imports from each country as those countries do.
"If they charge us, we charge them," he said to reporters. We're at 25 if they're at 25. We're at 10 if they're at 10.
This would probably violate the WTO's MFN regulations, which mandate that a country apply the same tariff to specific items regardless of their origin.
It would be against the rules if the US levied a tariff of, say, 9.4% on all commodities entering from Vietnam and 3.8% on all goods coming from the UK (which is the same as their own average external tariffs).
The US may be able to argue that certain retaliatory tariffs against the targeted nation are permitted by WTO regulations if it can demonstrate that the nation was already in some manner violating the organization's regulations.
However, merely enforcing reciprocal tariffs as a rule would probably be illegal.
What about individual commodities subject to reciprocal tariffs?
Another possibility is that Trump might try to match tariff rates on specific commodities imposed by several nations, rather than the average national tariff rates.
For instance, all automobile imports from outside the EU, including those from the US, are subject to a 10% duty.
However, the United States only levies a 2.5% duty on automobile imports, including those from the European Union.
To level the playing field, the US may choose to levy a 10% tariff on EU automobiles.
However, considering the wide variety of items involved in international trade and the various tariff regimes used by the 166 WTO members, it would be a very time-consuming and complicated task to attempt to match duties on every kind of import with every different nation.
The administration's reciprocal tariffs may also be intended to counteract "non-tariff barriers" to trade, including regulations from other nations, domestic subsidies, currency values, and Value Added Taxes (VAT), according to Trump's official policy memo.
While the majority of other countries, including the UK, impose VAT on goods, the United States does not.
This can further complicate the process of creating the tariffs.
Economists concur that domestic laws and subsidies can be significant non-tariff trade barriers, but they maintain that VAT does not fit this description because it is applied to all domestically sold goods and does not, therefore, result in a relative cost disadvantage for US imports.
VAT is not listed as a trade barrier by the WTO.
Would the United States genuinely lower its tariffs?
Theoretically, the US could be forced to reduce certain tariffs rather than raise others if Trump were sincere about precisely matching each country's particular duties.
Compared to certain of its trading partners, the United States imposes higher tariffs on specific agricultural items.
For example, the United States presently levies effective tariffs of over 10% on a large number of milk imports. However, dairy imports from New Zealand, a significant producer of milk worldwide, are duty-free.
Lowering the tariff for milk exporters from New Zealand would probably encounter political opposition from lawmakers in Wisconsin, a swing state, as the US milk tariffs are intended to safeguard US dairy farmers, many of whom are located there.
Similarly, the US auto industry would face difficulties under a truly reciprocal US tariff system based on specific items.
Truck imports, including those from the EU, are subject to a 25% duty in the US.
However, the EU only imposes a 10% tariff on trucks that are imported, including those from the US.
Therefore, in theory, the US would drop its duty here if it reciprocated the EU's levy on imported trucks.
American automakers may be in favour of a reciprocal tariff on EU vehicles, but they may not be in favour of one on EU trucks.
However, Trump clarified on Thursday that some of his proposed tariffs, including those on steel and aluminium, would be "over and above" his reciprocal tariffs, implying that his main goal is not actually true trade reciprocity.
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