Trump’s Reciprocal Tariff Policy
US Treasury Secretary Scott Bessent recently presented the clearest explanation of the tariffs the Trump administration is planning to levy. Speaking on Fox News on March 18, he said:
“What’s going to happen on April 2, each country will receive a number that we believe that represents their tariffs. So, for some countries it could be quite low. For some countries it could be quite high.”
The secretary added that some tariffs “may not have to go on because a deal is pre-negotiated”. In other cases, he expressed the hope that after a nation received its “reciprocal tariff number … [it] will come to us and want to negotiate it down”. But he also cautioned that “there’s what we would call kind of the dirty 15, and they have substantial tariffs.”
Based on 2024 US Census import and export data on goods, the “dirty 15” includes the China ($295.4 billion trade deficit with the US), the EU ($235.6 billion), Mexico ($171.8 billion), Vietnam ($123.5 billion), Ireland ($86.7 billion), Germany ($84.8 billion), Taiwan ($73.9 billion), Japan ($68.5 billion), South Korea ($66.0 billion), Canada ($63.3 billion), India ($45.7 billion), Thailand ($45.6 billion), Italy ($44.0 billion), Switzerland ($38.5 billion), and Malaysia ($24.8 billion).
In a presidential memo on Reciprocal Trade and Tariffs, Trump instructed his administration to consider in proposed actions other countries’ measures that contribute to US trade deficits in goods. Such measures include non-tariff and regulatory barriers; taxes, including value added taxes; exchange rate manipulation; and any other practices that restrict fair competition.
How the United States will calculate reciprocal tariffs remains unclear. Will the administration consider the overall difference in tariffs or focus on peak tariffs on specific industries? Currently, the United States has a trade-weighted average import tariff rate of 2.5%, while the EU’s is 2.7%, China’s is 3.1%, and India’s is 11.5%.
The legal authority that the administration will invoke to impose tariffs is also unclear. Most existing trade tools (e.g., trade laws including Section 301, Section 232, and Section 338) require an investigation first. And although the United States looks at only trade deficits for goods, the White House is including barriers to services (most notably technology or digital services) as a justification for reciprocal tariffs. More than 160 countries impose a value added tax on goods, but vast evidence and past legal cases demonstrate it is not a trade barrier. Will the United States provide any exclusions for items not domestically produced or available? And which lucky countries will be exempt from tariffs due to agreements negotiated before April 2?
We will soon learn the answers.