What Are Trump’s Reciprocal Tariffs And Which Countries Might Be Affected?

Trump's reciprocal tariffs aim to match U.S. import taxes with those of other nations. Learn how this policy could impact global trade, with a focus on India and other high-tariff countries.

What Are Trump’s Reciprocal Tariffs And Which Countries Might Be Affected?

Source : PTI

In a move that could further disrupt global trade, US President Donald Trump has announced plans to introduce reciprocal tariffs, aligning US import tax rates with those imposed by other nations. The latest development follows Trump's longstanding rhetoric on trade fairness and could have far-reaching economic implications.

What Are Reciprocal Tariffs?

Tariffs are taxes levied on imported goods, often used to protect domestic industries or retaliate against trade imbalances. Trump has repeatedly emphasized a tit-for-tat approach, stating, "An eye for an eye, a tariff for a tariff, same exact amount." “Every country will be reciprocal,” Trump reiterated recently, with plans to detail the policy further in a Thursday news conference. Analysts suggest that this could mean increasing tariffs on imports to match the levels imposed by other countries on US goods.

According to Goldman Sachs, adjusting tariffs on a product-specific basis could raise the United States’ average tariff rate by approximately two percentage points. While Washington maintains a relatively low average tariff of 2.7% as of 2022, it imposes higher duties on politically sensitive products like apparel, sugar, and pick-up trucks.

Who Will Be Affected?

Emerging markets with high tariffs on US goods, such as India and Thailand, are expected to bear the brunt of this policy. JPMorgan analysts predict that these nations, which impose significantly higher tariffs on US imports, could face steep countermeasures.
Trump has previously criticized India’s trade policies, calling the country a "very big abuser" in terms of import tariffs. National Economic Council Director Kevin Hassett recently echoed these concerns, stating that India’s high tariffs effectively block US exports.
However, Goldman Sachs notes that "there should be no effect on countries with free trade agreements like Mexico, Canada, and (South) Korea, limiting the overall impact" if Washington pursues a country-based approach.

Potential Complications and Global Reactions

It remains unclear whether reciprocal tariffs are an alternative to the universal 10-20% tariff floated by Trump on the campaign trail or a separate policy. Analysts warn that the administration might factor in non-tariff barriers such as value-added taxes (VATs), potentially raising the effective tariff rate by another 10 percentage points.
JPMorgan has speculated that Trump's move could be, in part, a reaction to high European Union VATs. This approach could risk escalating trade tensions and prompting retaliatory measures from affected countries, leading to further market instability.

Economic and Political Motives

Trade experts believe that unpredictability is a key element of Trump’s negotiating tactics. "One of the objectives is to create uncertainty as a negotiating tactic, but uncertainty is a tax on doing business," said Jeffrey Schott, senior fellow at the Peterson Institute for International Economics.
Schott also noted that US objectives might include both economic and geopolitical priorities, particularly regarding Europe and the ongoing conflict in Ukraine. The United States could leverage trade policy to push for greater cooperation on sanctions against Russia while also promoting exports in sectors like liquefied natural gas (LNG).

Is It a Two-Way Street?

Despite Trump's rhetoric, some trade analysts argue that a truly reciprocal tariff system might necessitate reductions in US tariff rates on goods from multiple countries. "Should Trump's system be based on average tariff rates, then 'true' reciprocity would require US tariff rate reductions on goods from dozens of countries," noted Scott Lincicome of the Cato Institute.
As global markets react to the prospect of reciprocal tariffs, the Trump administration’s next steps will be closely watched. The policy’s implementation and scope remain uncertain, but its potential to reshape US trade relations—and possibly the broader global economy—cannot be underestimated.