Trump's new tariff policy targets developing countries, global trade may stir up waves again
US President Trump posted a fully capitalized post on Truth Social on Thursday, hinting at the upcoming launch of a new round of comprehensive equivalent tariffs to match higher tariffs imposed by other countries on US goods.
On Thursday morning, Trump posted: "The past three weeks have been great, perhaps the best time ever, but today is the key: reciprocal tariffs!! Make America Great Again!!!".
Equal tariffs were one of Trump's core promises during his campaign, which he believed was a way to "settle accounts" with foreign countries imposing tariffs on American goods and to address what he called unfair trade practices.
Trump explained last Sunday why he wants to implement reciprocal tariffs: "It's simple, if they tax the United States, we tax them." He is expected to announce more details in front of his meeting with Indian Prime Minister Modi today.
White House Press Secretary Levitt reiterated Trump's position on Wednesday, saying, "This is his very firm idea, and the logic of the president wanting to implement reciprocal tariffs is very simple." She added that other countries have been "exploiting" the United States, "which is why the president believes this will be a great policy that not only benefits American workers, but also enhances our national security
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It is currently unclear what the announcement on Thursday will be. The announcement was initially promised to be released on Tuesday or Wednesday. Trump's economic advisers Peter Navarro and Kevin Hassett attempted to lower expectations for this week's policies in an interview with CNN this week. Hassett stated on Wednesday that negotiations are still ongoing, while Navarro stated on Tuesday that this week's announcement may only initiate an investigation into how to implement equivalent tariffs, rather than directly ordering full implementation.
Tariffs are an important component of Trump's plan to increase fiscal revenue to pay for the extension of the 2017 tax reform and other promised tax cuts. However, economists warn that the ultimate cost of tariffs may be borne by American consumers. The taxed importer will pass on the cost to the retailer, who will then raise the price of the goods.
These tariffs are expected to have the most severe impact on developing countries, especially India, Brazil, Vietnam, and other Southeast Asian and African countries, as they impose much higher tariffs on US goods than the US imposes on them. For example, according to World Bank data, the average tariff rate for US imports to India in 2022 is 3%, while India's average tariff rate for US imports is 9.5%.
However, considering Trump's meeting with Modi on Thursday, the leaders of both sides may reach an agreement to avoid or delay the imposition of new tariffs on Indian exports to the United States. According to data from the US Department of Commerce, India exported $87 billion worth of goods to the US last year, while the US exported $42 billion worth of goods to India.
The equivalent tariffs will be implemented together with the 10% comprehensive tariff on China that came into effect last week and the 25% tariff on steel and aluminum products announced by Trump on Monday. In addition, if Trump advances the 25% tariffs on Mexico and Canada that will take effect on March 1st, along with the existing tariffs on Chinese goods, according to research data, the overall tariff cost will increase the annual expenditure of ordinary American households by more than $1200. Equivalent tariffs may further push up this number.
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Which products may become more expensive?
Greg Husisian, an international trade expert and partner at Foley&Lardner law firm, stated that the United States typically imports low-cost foreign goods or goods that the US cannot produce. For example, medical grade gloves, as well as resistors and capacitors in microwave ovens and washing machines, may become more expensive due to equivalent tariffs. In addition, the prices of European cars in the United States will also increase significantly. At present, the US tariff on European cars is only 2.5%, while the tariff on US car exports to EU countries is as high as 10%.
Deutsche Bank economist Justin Weidner said that if American consumers cannot find cheaper alternatives, they may ultimately have to bear the cost of tariffs. But it also depends on whether manufacturers, retailers, or other companies in the supply chain can absorb some of the costs on their own.
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