On April 2 — dubbed ‘Liberation Day’ by his supporters — U.S. president Donald J. Trump unveiled sweeping tariffs on imports from the rest of the world under 1970s-era emergency economic authority. Contrary to the belief that these would be strict reciprocal tariffs — the same rate applied on imports from individual countries as those countries apply on U.S. imports — he announced a flat 10% tariff, as well as further measures on specific countries. The formula used for country-specific rates was initially presented by the White House as a “discounted reciprocal tariff”: about 50% of their tariffs plus other factors, including trade barriers and alleged currency manipulation. But, in reality, the number appeared linked to the trade surplus that each country enjoys with the United States, a relatively simplistic measure of give-and-take rather than the result of a careful examination of comparative advantage. Exceptions have been made for certain goods, including steel, aluminum, and auto parts subject to preexisting tariffs; as well as copper, pharmaceuticals, semiconductors, gold, energy, and certain minerals. It is important to stress that these measures are an opening salvo to negotiations that in many cases will begin now in earnest.
These tariffs are a product of Trump’s clear, and relatively consistent, worldview when it comes to the international economy. He is convinced that the United States has been a net loser from the most recent phase of globalization. It is true that the United States has been the most open major economy, particularly when assessed across multiple dimensions, and that openness has contributed to a persistent trade deficit, which is now over $1 trillion annually. Trump also believes, with some justification, that the trade and industrial policies of certain other countries — notably China — have contributed significantly to American deindustrialization. By his reasoning, tariffs are a harsh but effective way of redressing these challenges, by generating revenue, reducing the U.S. reliance on imports from particular countries, promoting domestic production, and increasing negotiating leverage. However, the degree to which these objectives can be achieved is debatable and dependent on specifics, such as sequencing and other industrial policy measures.
Trump’s April 2 announcement has already roiled financial markets, and the global economy will continue to be adversely affected both by the implementation of tariffs and by uncertainty as negotiations proceed. But while there will be no immediate winners, some parties appear relatively better off. One is the United Kingdom, which faces only a 10% tariff that compares favorably to the 20% on the European Union. The UK and United States appear to have reached the broad outlines of a trade agreement that might enable carve-outs on tariffs. Similarly, India is confronting a 26% tariff, which while steep compares favorably to other South Asian economies (29% for Pakistan, 37% for Bangladesh, 44% for Sri Lanka) that are competitors for garment, textile, and jewelry exports, and Southeast Asian economies (46% for Vietnam, 36% for Thailand, 32% for Indonesia) that compete on electronics, machinery, and other industrial products. Like the UK, India is also in relatively advanced negotiations with Washington on a bilateral trade agreement (BTA). Other countries have also been spared potentially worse outcomes, including South Korea (25%), Malaysia (24%), the Philippines (17%), and Brazil, Singapore, Australia, and Turkey (all 10%).
The most affected will include China, which now confronts a 54% tariff when the new measures are added to previous steps. Taiwan, which continues to seek U.S. assurances as it confronts Chinese assertiveness, has not received any economic relief, with a steep 32% tariff. Most South and Southeast Asian countries have been particularly hard hit, as have the European Union and Switzerland. In many cases, carve outs will depend less on the willingness and ability of these countries negotiators to reach some kind of accommodation with the White House, as it will the demands of U.S. consumers and producers, who will bear the most immediate costs of these tariffs. The April 2 announcements by Trump represent a major disruption to the global economy. But amid the turbulence — and the very real effects that will be felt by consumers, businesses, and national economies in the United States and elsewhere — tough negotiations over the next few weeks and months will determine who comes out relatively better or worse off.
Dhruva Jaishankar is the Executive Director at ORF America.