Trump says he'll rework global trading relations with 'reciprocal' tariffs

Washington: President Donald Trump on Thursday set in motion a plan for new tariffs on other countries globally, an ambitious move that could shatter the rules of global trading and is likely to set off furious negotiations.

The president directed his advisers to come up with new tariff levels that take into account a range of trade barriers and other economic approaches adopted by America's trading partners. That includes not only the tariffs that other countries charge the United States but also the taxes they charge on foreign products, the subsidies they give their industries, their exchange rates and other behaviors the president deems unfair.

The president has said the step was necessary to even out America's "unfair" relationships and stop other countries from taking advantage of the United States on trade. But he made clear that his ultimate goal was to force companies to bring their manufacturing back to the United States.

"If you build your product in the United States, there are no tariffs," he said during remarks in the Oval Office.

Howard Lutnick, the president's nominee for commerce secretary, said the measures could be ready as soon as April 2. He will oversee the plan along with Jamieson Greer, Trump's pick for trade representative, if they both are confirmed to those posts, and other advisers.

The decision to rework the tariffs that America charges on imported goods would represent a dramatic overhaul of the global trading system. For decades, the United States has set its tariff levels through negotiations at international trade bodies like the World Trade Organization. Setting new levies -- likely to be higher than what the United States charges today -- would effectively scrap that system in favor of one determined solely by U.S. officials and based on their own criteria.

Timothy Brightbill, a lawyer at Wiley Rein, said a move toward a reciprocity-based tariff system would be "a fundamental change to U.S. trade policy and among the biggest in more than 75 years -- since the creation of the current multilateral trading system" in 1947.

Chad Bown, a senior fellow at the Peterson Institute for International Economics, said Trump's tariffs would violate WTO rules in two ways. Applying different tariff rates to different countries would violate a commitment by WTO members not to discriminate against one another. And if the United States raises its tariff rates beyond the maximum rate it has negotiated with other members, that would break trading rules, too.

"A decision to unilaterally increase US import tariffs, product by product, country by country, would be President Trump's biggest blow yet to the rules-based trading system," Bown said.

The action seems likely to kick off intense negotiations with governments whose economies depend on exports to the United States. It could also elicit trade wars on multiple fronts if other countries choose to increase their own tariffs in retaliation.

Business groups issued cautious statements, saying that they supported fairer trade but urging the administration to end up lowering tariffs globally, rather than raising them. A White House official, who did not have permission to speak for attribution, said in a call with reporters Thursday that other countries would be given the opportunity to negotiate on the levies they will face.

Nearly every country would be affected, but the move could have particularly significant consequences for India, Japan and the European Union.

Speaking at a joint news conference with Prime Minister Narendra Modi of India later Thursday, Trump said that at the end of his first term, he "wasn't really in the mood" to impose reciprocal tariffs.

"We felt that now it was finally time after 45 or 50 years of abuse," Trump said. He added, "I had discussions with India in the first term about the fact that their tariffs were really high, and I wasn't able to get a concession."

Regarding Europe, Trump and his staff members have repeatedly pointed to the value-added tax as an additional injustice on top of tariffs.

Peter Navarro, the president's senior counselor for trade, called the European Union's VAT the "poster child" for unfair trade toward American business, saying that such treatment had allowed Germany to export to the United States many times the number of cars that it bought from it.

"President Trump is no longer willing to tolerate that," Navarro said. "The Trump fair and reciprocal plan will put a swift end to such exploitation of American workers."

The EU requires a standard value-added tax rate on most goods and services, and while the rates vary by country, they average about 22 per cent across European nations. The tax is applied at each stage in a supply chain, and the cost is usually borne by the end consumer.

The United States is an outlier among advanced economies in not levying a value-added tax on products like cars.

Trump's proposal represents a significant reversal in a decades-long push in trade policy toward lowering international barriers. While past presidents have often negotiated with foreign countries over tariffs, those agreements have typically led to lower levies, not higher ones.

Trump did acknowledge that his reciprocal tariff plan could result in prices going up. That's because consumers tend to pay higher prices when goods are taxed at a higher rate. But in his Oval Office remarks earlier Thursday, the president said that any increase would be short-lived and that his plan would result in more jobs. "Prices could go up somewhat short term, but prices will also go down."

In the long term, he said, it's going to "make our country a fortune."

The reciprocal tariff plan is the latest move by Trump to punish allies and adversaries alike with an extraordinary array of trade actions. The United States imposed an additional 10 per cent tariff on all products from China last week and came within hours of putting sweeping tariffs on Canada and Mexico that would have brought US tariff rates to a level not seen since the 1940s.

The president had criticized Canada and Mexico over drug and migrant crossings into the United States, but agreed to put off the tariffs for 30 days after the countries offered him some concessions.

On Monday, the president signed a proclamation imposing 25 per cent tariffs on all foreign steel and aluminum. Trump said his advisers would also meet over the next four weeks to discuss measures on cars, pharmaceuticals, chips and other goods.

Reciprocal tariffs will likely broaden Trump's trade fight to even more countries. It remains to be seen whether the president uses the strategy to drastically raise U.S. barriers to imports or as a lever to extract concessions from countries that end up opening foreign markets.

The White House said the president could draw on several legal authorities to issue the tariffs, including Section 232, which relates to national security; Section 301, which relates to unfair trading; and the International Emergency Economic Powers Act.

The official said that Trump was not ruling out a further "universal" tariff later to reduce the US trade deficit but that for now the president had chosen to pursue reciprocal treatment.

Trump floated proposals in his first term and his 2024 campaign for making trade more reciprocal by matching the tariff rates that countries impose on American products.

He has often pointed to America's lower tariff rate as evidence the country is being taken advantage of. The United States has an average tariff rate of around 3%, lower than other countries, but still roughly in line with those of Canada, Britain, Japan and the European Union. Globally, wealthy countries tend to have lower tariff rates, while poorer countries have negotiated higher ones, to protect their less developed industries and subsistence farmers.

But Trump has criticized other countries for charging higher tariffs on certain American products than the United States charges them. For example, he has pointed to the 10 per cent tariff that the European Union charges on American cars, versus a 2.5 per cent tariff for cars sold in the other direction.

The United States has set its tariff rates for imports lower than that of some trading partners, because for decades US officials were convinced of the benefits of freer trade. They believed lower tariffs would allow the United States to import cheap products for US consumers and raw materials for its factories, fueling the American economy.

Pat Toomey, a former Republican senator from Pennsylvania and a noted free trader, said the president's plan would mean the United States was simply taxing its own consumers more, lowering their standard of living and making American manufacturers less competitive.

"The logic of reciprocal tariffs is, if another country punishes its consumers, we have to punish ours," he said.

Trump's views differ. He argues that equaling out American tariff rates is essential to restoring US manufacturing and that higher tariffs will reduce the trade deficit. Some economists disagree, arguing that movements in currency could offset any effects on the trade deficit.

Economists and historians also say that the varying tariffs that countries put on one another's products are not evidence of discrimination. Rather, they reflect the priorities that each government had when it agreed to maximum tariff rates in negotiations with other members of the World Trade Organization.

Those negotiations gave governments the opportunity to fight for higher tariff rates on industries they wanted to protect and accept lower tariff rates on products they were more likely to import.

In the United States, for example, officials negotiated higher tariffs on wool sweaters and footwear to protect American producers at the time, said Inu Manak, a trade expert at the Council on Foreign Relations.

Other countries protect their industries, too, she said, but want to keep tariffs low "so that their consumers and manufacturers have access to a broad selection of items at the most competitive price."

Douglas Irwin, a professor of economics at Dartmouth College, said that countries had come out of World War II with wildly different tariff codes. When trade negotiations began in 1947, countries cut tariffs piecemeal. In the 1960s, many countries agreed to lower all tariffs, but there was no effort to equalize them on specific products.

"Reciprocity in this case was 'let's all cut by about the same amount' not 'let's equalize our tariffs on a product by product basis,' which seems to be what the Trump view of reciprocity should be," he said.

If these tariffs violate WTO rules, other members of the WTO could challenge them. But the panel at the WTO in charge of resolving such disputes was effectively neutered in the first Trump administration when the United States refused to appoint any more members to it. The Biden administration continued that policy.