(Reuters) – U.S. President Donald Trump has instructed his economic team to formulate plans for reciprocal tariffs on countries that impose taxes on U.S. imports, escalating concerns about a potential global trade war with both allies and adversaries.
“On trade, I have decided, for purposes of fairness, that I will charge a reciprocal tariff, meaning whatever countries charge the United States of America, we will charge them. No more, no less,” Trump stated in the Oval Office on Thursday.
Trump signed a memorandum directing his team to calculate tariffs that match those imposed by other nations while also addressing non-tariff barriers such as vehicle safety regulations that limit U.S. auto exports and value-added taxes that increase costs.
The directive does not immediately implement new tariffs but initiates a comprehensive review, potentially spanning weeks or months, to assess existing tariffs on U.S. goods and devise an appropriate response.
Market Reactions and Economic Implications
Financial markets reacted positively to the absence of immediate tariff impositions. However, investors remain cautious about the potential economic impact, including inflationary pressures and disruptions to Federal Reserve policy.
“While global financial markets may be inclined to take some relief from the delay in the immediate imposition of reciprocal tariffs, it is not clear to us whether the delay necessarily reflects a lower likelihood that they will eventually be imposed,” Barclays analysts noted.
Targeted Nations and Trade Deficit Reduction Goals
Trump’s tariff strategy is expected to focus on countries such as China, Japan, South Korea, and the European Union. Commerce Secretary nominee Howard Lutnick stated that the administration would evaluate each affected country individually, with studies scheduled for completion by April 1.
That deadline aligns with Trump’s directive to his economic advisers on his first day in office, instructing them to develop strategies for addressing trade imbalances, which he perceives as a U.S. subsidy to foreign nations.
Trump acknowledged that prices might rise in the short term as a result of the policy shift. “Tariffs are great,” he asserted.
A senior White House official, speaking ahead of Trump’s announcement, emphasized that the administration would prioritize nations with significant trade surpluses and higher tariff rates.
The proposed tariffs would be designed to counteract trade barriers, including excessive regulations, value-added taxes, government subsidies, and exchange rate policies that disadvantage U.S. exports.
“They effectively don’t let us do business. So we’re going to put a number on that that is a fair number. We’re able to accurately determine the cost of these non-monetary trade barriers,” Trump explained.
Openness to Negotiations
The administration’s announcement appears to leave room for negotiations. A White House official indicated that Trump is willing to lower tariffs if other nations agree to do the same. The proposed tariffs aim to be tailored to each country rather than applying a uniform global rate.
“It’s a relief that the administration isn’t rushing to impose new tariffs, and we welcome the president taking a more nuanced, inter-agency approach,” said Tiffany Smith, Vice President for Global Trade at the National Foreign Trade Council.
“Ideally, this process will result in us working with our trading partners to lower their tariffs and trade barriers as opposed to increasing our own.”
Broader Trade Measures and India’s Involvement
Since taking office on January 20, Trump has implemented tariffs on all steel and aluminum imports, imposed a 10% duty on Chinese goods, and temporarily suspended tariffs on imports from Canada and Mexico. He has also hinted at new tariffs on automobiles, semiconductors, and pharmaceuticals, with auto tariffs expected soon.
“This is beyond negotiation. It’s to be taken very seriously,” said Josh Lipsky, Director of the Atlantic Council’s GeoEconomics Center and a former IMF adviser.
“I do think every country has been put on notice. And if you were going to implement reciprocal tariffs on the scale he’s talking about, this is actually how you would go about it.”
During a meeting in Washington, Indian Prime Minister Narendra Modi and Trump discussed reducing trade barriers. Modi’s government enforces some of the highest tariffs on U.S. exports among major trading partners.
Following their discussions, Modi expressed a willingness to negotiate tariff reductions and increase purchases of U.S. oil, gas, and defense equipment. Both leaders agreed to work toward a trade agreement.
Indian Foreign Secretary Vikram Misri stated that a deal could be finalized within the next seven months, while a senior Trump administration official suggested an agreement could be reached as early as this year.
“We are being reciprocal with India,” Trump stated during a press conference. “Whatever India charges, we charge them.”
Legal and Policy Considerations
Experts note that implementing reciprocal tariffs presents significant challenges for U.S. trade officials. The delay in announcing specific measures suggests the administration is still navigating the legal and economic complexities.
Trump may invoke several legal provisions, including Section 122 of the Trade Act of 1974, which allows for a temporary 15% tariff, or Section 338 of the Tariff Act of 1930, which addresses discriminatory trade practices but remains largely unused.
Additionally, Trump could rely on the International Emergency Economic Powers Act, which was previously used to justify tariffs on Chinese imports and remains a potential tool for enacting tariffs on Canada and Mexico.
As the administration moves forward with its trade agenda, global markets and U.S. trading partners will closely monitor developments, anticipating further clarity on the scope and impact of the proposed measures.
