Reciprocal Tariffs, Now I Get It … I Think
By Dr. Harold A. Black
blackh@knoxfocus.com
haroldblackphd.com
I have called Trump’s tariffs “stupid,” and they are – maybe. I still don’t understand the across-the-board tariffs on Canada and Mexico, which punish U.S. car companies and reward the Japanese and the Koreans. If Biden did this, I would speculate that Hunter probably had a hand in it. But Trump? Of course, Trump has threatened 100% on Chinese EVs but only put an additional 10% on Chinese goods. Why only 10%?
Now Trump’s trade representative, Peter Navarro, is pushing for “reciprocal” tariffs. Although there is a bill in the House to give Trump the authority to impose these tariffs, Trump is likely to rush ahead and do it by executive order. What is a reciprocal tariff? Trump’s tariffs will be imposed on every country that trades with the United States. It will match any tariff levied on American goods exported to those countries.
The plan equalizes duties with virtually all U.S. trading partners. The action would mean that if a country charges a certain tariff on the U.S., it will receive the same treatment for its exports to America. Actually, the U.S. now only trails Brazil in the average tariff applied to all goods. Brazil’s is 8.5% and the U.S. is now 7.5%. Does this mean that the U.S. will lower rather than raise tariffs? No. For example, the tariffs will be applied country by country. India imposes higher tariffs on American goods than America imposes on Indian goods. So, look for import tariffs on Indian goods to go up until they are equalized with American tariffs on Indian goods.
You may recall that I had a conversation with Reagan’s most influential economic advisor, who said that he had spoken to Trump about the tariffs. He insisted that the author of the “Art of the Deal” was using tariffs as a bargaining tool. He pointed out that at a G7 meeting, Trump offered to lower all U.S. tariffs to zero if the other countries reciprocated. None did. Now Trump is forcing their hands and using reciprocal tariffs as a negotiating tool. It is revealing that this threat was floated to coincide with the visit of Indian Prime Minister Modi. India imposes among the highest tariffs on selected American goods. Faced with reciprocal tariffs, Modi is expected to agree to cut import tariffs on at least 30 products, including a 100% tariff on Harley-Davidson motorcycles and a 25% tariff on U.S. automobiles. Top U.S. exports to India in 2023 included crude oil and petroleum products, LNG, coal, medical devices, scientific instruments, scrap metals, turbojets, computers and almonds. Trump wants them to buy more U.S. arms and agricultural products to reduce the trade deficit currently at $45.7 billion
Trump is obsessed with the U.S. trade deficit, which is $918 billion. Of course, even with reciprocal tariffs, Trump will not be able to eliminate the trade deficit with every partner. For example, Vietnam has very low tariffs of 1.1%. We have a trade deficit of $110 billion. Can this deficit be eliminated? It is doubtful, given Vietnam’s per capita income and small population. However, the country’s currency, the dong, has fallen to very low levels against the dollar, making U.S. goods more expensive and Vietnam imports cheaper. Look out for the Vietnamese to be accused of currency manipulation. Maybe Melania will ask Trump not to target Slovenia with its $5 billion trade deficit.
So I think I get it. Reciprocal tariffs are being used to equalize the tariffs between the United States and every country in the world. It is a bargaining tool if it impacts foreign countries more than it does the United States. What is overlooked is that the U.S. has a trade surplus with at least 25 countries. Afghanistan, Columbia, Lebanon, Morocco, Costa Rica, Peru, Paraguay, the Netherlands, Jamaica, Egypt, Qatar, the United Kingdom and Panama are some of the countries. Hong Kong is number one. Then, do we lower our tariffs on these countries even if they have higher tariffs on American goods? No. If they have a tariff on American goods then they will have a tariff put on theirs.
