Trump orders up reciprocal plan for more tariffs, even as inflation heats up

Hind Al Soulia - Riyadh - WASHINGTON — US President Donald Trump doubled down on his extraordinary push for more balanced trade, ordering on Thursday that agencies should investigate plans for new reciprocal tariffs that could boost America’s revenue — but could also ignite a global trade war and add to America’s rebounding inflation problem.

Howard Lutnick, Trump’s Commerce Secretary nominee, said he anticipates the investigation will be complete by April 1. It is then up to Trump to decide, as of April 2, when to enact any of the new recommended tariffs, he said.

Reciprocal tariffs were one of Trump’s core campaign pledges — his method for evening the score with foreign nations that place taxes on American goods and to solve what he has said are unfair trade practices.

“They charge us a tax or tariff and we charge them the exact same,” Trump told reporters Thursday in the Oval Office before signing a memo dubbed the “Fair and Reciprocal Plan.”

“Nobody knows what that number is unless you go by country,” Trump said. In calculating what reciprocal tariff rate to levy on other nations, he said his administration will also be taking into account nations with value-added tax (VAT), which he labeled “far more punitive than a tariff.”

Trump said America needs a fairer trade policy that makes US goods more attractive on the market.

“The United States is one of the most open economies in the world, yet our trading partners keep their markets closed to our exports,” according to a White House fact sheet outlining the plan. “This lack of reciprocity is unfair and contributes to our large and persistent annual trade deficit.”

The announcement comes as Trump is scheduled to meet with Indian Prime Minister Narendra Modi.

After signing the memo, Trump singled out India, saying, “They charge more tariffs than any other country.”

Trump and a fact sheet of the action specifically drew attention to tariffs India charges on motorcycles from the US. “I remember when Harley Davidson couldn’t sell their motorbikes into India because of the fact that .. the tax was so high,” Trump said.

The fact sheet claimed India “charges a 100% tariff on U.S. motorcycles, while we only charge a 2.4% tariff on Indian motorcycles.”

Trump said India could potentially avoid new tariffs if they bring more production to the US.

“If you build here, you have no tariffs whatsoever. And I think that’s what’s going to happen. I think our country is going to be flooded with jobs,” the president said.

The US currently has a weighted average import tariff rate of 2% on industrial goods, according to the US Trade Representative.

Weighted average tariff rates give special consideration to the value of a country’s imports. That means that if one country’s exports are subject to tariffs in another country and they constitute a large portion of the country’s overall imports, their weighted average tariff rate will be higher compared to another country whose exports accounts for a small share.

Industrial goods, an umbrella category that includes cars, clothing, oil and more, account for practically everything the US imports aside from agricultural goods. Half of all industrial goods the US imports have been entering the country duty-free, according to the USTR.

“Our workers and industries bear the brunt of unfair practices and limited access to foreign markets,” the White House official said, noting how many countries charge much higher tariff rates on US exports. “This situation is untenable.”

Tariffs are a key part of Trump’s plan to raise revenue to pay for the extension of his 2017 tax cut on top of other promised tax cuts. But the burden of tariffs could ultimately fall on American consumers, economists say — a potentially troubling self-inflicted wound as inflation has begun to creep higher again.

“Prices could go up somewhat short term, but prices will also go down,” Trump said Thursday. “So Americans should prepare for some short-term pain,” he added.

Importers who pay the tariffs pass the costs on to retailers, which then raise prices for consumers. That has left some Trump proponents stunned and angry, including the Wall Street Journal editorial board, which snarkily asked: “Does President Trump understand money?” And Republican Kentucky Senator Mitch McConnell in an op-ed in the Courier-Journal criticized Trump’s tariffs for threatening to inflict high costs on Kentuckians.

If Americans can’t switch to cheaper alternatives as a result of the tariffs if enacted, they’ll probably wind up paying the cost of the tariffs, Justin Weidner, an economist at Deutsche Bank, said. But it also depends on whether manufacturers, retailers or other companies along the supply chain can absorb any of those costs themselves.

The plans for these new tariffs are aimed at countries with some of the widest trade deficits with the US as well as differences in tariff rates charged on US goods brought into their countries compared to what the US charges them.

The tariffs could hit developing countries particularly hard, especially India, Brazil, Vietnam and other Southeast Asian and African countries, given that they have some of the widest differences in tariff rates charged on US goods brought into their countries compared to what the US charges them.

For instance, in 2022, the US average tariff rate on imports from India was 3%, whereas India’s average tariff rate on imports from the US was 9.5%, according to World Bank data.

However, given Trump is meeting with Modi on Thursday, the two leaders could reach an agreement that avoids or delays new tariffs on Indian exports to the US. Last year, India exported $87 billion worth of goods to the US, while the US exported $42 billion worth of goods, according to Commerce Department data.

But the focus on countries with a VAT, as opposed to just tariffs, means European Union countries like Germany, Ireland and Italy – some of America’s biggest trading partners – could face higher tariff rates.

Some of those nations’ biggest exports to the US include pharmaceuticals, medical equipment, cars and car parts, all of which could get more expensive under higher tariffs.

Enacting reciprocal tariffs in response to countries with VAT is “just going to be starting a trade war,” Aaron Klein, a former deputy assistant secretary at the Treasury Department who is now a senior fellow at the Brookings Institution, told CNN anchors on Thursday.

The reciprocal tariffs join the 10% across-the-board tariff that went into effect last week on top of other tariffs on Chinese goods and stricter 25% tariffs on steel and aluminum that Trump announced on Monday.

If Trump goes forward with the 25% tariffs on Mexico and Canada that were pushed back until March 1, the total direct cost of the import taxes on Chinese, Mexican and Canadian goods would equate to a tax hike of more than $1,200 per year for the typical American household, Peterson Institute researchers have found. Reciprocal tariffs would likely add to that amount.

Wall Street seemed largely unfazed Thursday, with some investors betting Trump’s bark will be worse than his bite.

US markets began to climb after Trump’s afternoon announcement as investors breathed a sigh of relief that the president didn’t end up immediately enacting new reciprocal tariffs. The Dow ended the day up 343 points, or 0.8%, while the Nasdaq Composite rose by 1.5% and the S&P 500 added 1%.

“It’s like everything else: He says something with bombast, and then dials back,” said Michael Block, market strategist at Third Seven Capital. “We fear the worst and then realize it’s all part of the art of the deal.”

Block noted that Trump delayed, at the last minute, tariffs that were scheduled to take effect earlier this month on Canada and Mexico.

Keith Lerner, co-chief investment officer at Truist Wealth, said investors suspect tariffs will once again be used as a bargaining chip and may not be as severe or immediate as feared.

“It’s not like tomorrow we’re going to suddenly have 50% tariffs across the board,” Lerner said.

Still, even the threat of tariffs can cause uncertainty that depresses business investment and could cause the Federal Reserve to further delay interest rate cuts. — CNN