Former President Donald Trump was known for his fiery approach to world trade, tossing aside longstanding trade norms with reckless abandon. The ‘reciprocal’ tariffs he unveiled were a surefire recipe for disruption among international businesses, and brought friction not only with adversaries but also with America’s own allies.
Since the mid-20th century, tariffs have been the result of diplomatic negotiations among numerous nations. Trump tossed aside this precedent to wrest control of this process, citing America’s sustained trade deficits as justification. The echo of the 1970s when the U.S. last sold more goods to the world than it bought still reverberates eerily, leading Trump to claim an unfair disadvantage for U.S. corporations.
Despite the questionable logic, Trump proffers an equally contentious solution: a steep increase in U.S. tariffs intended to mirror those of other countries. The former president championed the idea unabashedly, implementing them during his first term, and within weeks of his second term, slapping a 10% tariff on China and raising import taxes on foreign aluminum and steel.
Trump’s iron-fisted approach didn’t stop there. He threatened with a 25% tariff on goods from Canada and Mexico, only to delay the implementation by 30 days. Yet, his belligerent stance could, conceivably, coerce other countries to reconsider their own import tariffs.
His aggressive strategy might at first glance seem to yield results, as evidenced by India’s willingness to reduce tariffs on particular goods and increase their purchase of U.S. energy. But this begs the question of sustenance and fostering amicable trade relations.
Trump’s ‘reciprocal tariff’ concept might sound straightforward: raise American tariffs on foreign goods to the same level as their levies on U.S. products. The approach appears populist and simplistic in its appeal, even if lacking in deep strategic coherence.
Amidst a volley of unsettled questions, choosing a means of implementing the new tariff rules reigns paramount — should they be applied item by item, country by country, based on each product’s tariff code, or should the focus rest on the average tariff of each nation relative to America’s own? Perhaps an entirely different approach is warranted — nothing seems off the table.
In contrast to other nations, America’s longstanding tradition has been to maintain generally lower tariffs. Its post-WWII global trade strategy was aimed at reducing trade barriers and tariffs in pursuit of peace, prosperity, and the strengthening of American export market, often at the cost of its domestic industries.
Trump’s policies were remarkable in the sense that they aimed at challenging the core tenet of free trade, pointing to the damage it’s caused American manufacturers and how it has laid waste to domestic factory towns. He introduced levies on everything from foreign steel, aluminum, washing machines, to solar panels, and most goods from China. Amazingly, President Joe Biden perpetuated Trump’s protectionist agenda, possibly to pander to those who believed in it.
Trump’s aggressive strategy wasn’t limited to tariffs. He fought against foreign practices he deemed as unfairly impeding American exports. Among these were subsidies favoring native producers, dubious health regulations blocking foreign products, and lax rules encouraging theft of trade secrets and intellectual property, all attempting to craft a level playing field where none existed.
Trump’s proposal to impose reciprocal tariffs introduced an additional layer of complexity, as he believed they would help offset damages caused by these unfair practices. Trump along with some of his tension-loving advisors argued that heftier tariffs would shrink America’s chronic trade deficits.
However, harsh tariffs failed to narrow the trade gap significantly. In fact, the import taxes introduced during the Trump-Biden era ironically led to a spike in the deficit. It ballooned to $918 billion last year, marking the second-highest record in U.S. history.
Contrary to their claims, economists contend that the deficit sprouts from unique tunes of the U.S. economy. The penchant for consumption coupled with the mammoth federal deficit outstrips the national savings leading to a demand for overseas goods and services. The U.S. thus is left with no choice but to borrow from overseas, selling treasury securities among other assets to cover the cost of its trade gap.