What are the reciprocal tariffs Trump is talking about and who might be affected?

Washington: US President Donald Trump has threatened to escalate his trade war by introducing reciprocal tariffs, a move that could extend to “every country” and potentially trigger broader tariff hikes on emerging market economies, analysts have warned.

This new round of tariffs, announced on Thursday, follows Trump's promise during his election campaign to implement “an eye for an eye, a tariff for a tariff, same exact amount.”

Trump had previously made it clear that every country would be subject to these reciprocal measures. 

Reciprocal tariffs would involve raising import taxes to match the level of tariffs imposed by other nations on US goods.

Changes

According to Goldman Sachs analysts, this approach could increase the United States’ average tariff rate by around two percentage points. However, targeting specific products would likely result in higher increases, especially in areas like apparel, sugar, and pick-up trucks, which are subject to higher tariffs. The complexity of including non-tariff barriers, such as regulations, would further complicate this approach.

Experts predict that reciprocal tariffs could lead to significant hikes on emerging market economies that impose high duties on US products, such as India and Thailand. Trump has previously criticised India, calling it a "very big abuser" of trade practices, particularly for its high tariffs that restrict US imports.

However, some experts, like Scott Lincicome from the Cato Institute, caution that such high tariffs are often used by poorer countries as a tool for revenue generation and protection, given their limited capacity to implement non-tariff barriers.

Goldman Sachs noted that countries with free trade agreements with the US, such as Mexico, Canada, and South Korea, would likely remain unaffected by the new tariffs. It remains unclear whether Trump sees reciprocal tariffs as an alternative to a proposed universal tariff of 10 to 20 percent, or as a separate policy entirely.

What is the problem?

One potential risk, according to Goldman Sachs, is that Trump’s administration could use reciprocal tariffs to address non-tariff issues, such as value-added taxes (VATs). If VATs were included in the calculation of tariffs, the average effective tariff rate could increase by another 10 percentage points, potentially targeting high VAT countries like those in the European Union.

This would add further uncertainty to trade negotiations, which could disrupt both US and foreign businesses, as pointed out by Jeffrey Schott, senior fellow at the Peterson Institute for International Economics. Schott added that such unpredictability serves as a "tax on doing business."

In negotiations with allies like Europe, US objectives could include both economic and geopolitical priorities, such as securing a better resolution to the ongoing conflict in Ukraine, which has been fighting off Russian invasion since 2022.

Additionally, Trump may seek to expand US exports in sectors such as liquefied natural gas (LNG). Regarding the US's own tariff rate, Lincicome explained that the country stands roughly in the middle among industrialised nations. If Trump's system were based on average tariff rates, it would require tariff reductions on goods from numerous countries, he added.