Trump’s Reciprocal Tariffs: A New Era of American Trade Wars

By: Laila Ahmed

(Research Assistant at the International Affairs Unit)

Introduction:

In a significant escalation of his trade war, President Donald Trump announced sweeping new tariffs on April 2, calling the historic action a “declaration of economic independence.” Trump’s bold attempt to combat unfair trade practices may result in higher pricing for American consumers and slower economic expansion.

Using national emergency powers, Trump declared 10% reciprocal tariffs on all imports into the US and much higher duties on items from roughly 60 nations or trading blocs that have a large trade deficit with the US. This includes increased taxes of 34% and 20% imposed on China and the European Union, respectively.

Trump’s most recent actions represent the most significant escalation in US tariffs in nearly a century since the Smoot-Hawley Act of 1930. However, the trade battle doesn’t stop there.

What are tariffs and how do they work?

Taxes imposed on commodities purchased from other nations are known as tariffs. Technically, they are calculated as a percentage of the product’s value. Businesses that import items into the country are required to pay taxes to the government.[1]

Tariffs are nothing new. For centuries, nations have used them to generate income to support their governments and shield their national industries against foreign competition.

However, with the establishment of the World Trade Organization and initiatives by Western countries to liberalize trade, that started to alter in the late 1990s.

Trump, however, is now attempting to go back in time. He proposed tariffs that are higher and more widespread than those imposed by any other president throughout modern American history even more extensive than the 1930 Smoot-Hawley tariffs, which historians claim exacerbated the Great Depression.[2]

For decades, Trump has argued that the US should use tariffs to boost its economy. Trump has maintained that the US should impose tariffs to strengthen its economy for decades.

According to him, they will boost tax revenue, encourage US consumers to purchase more American-made goods, and attract significant investment to the US. Trump wants the value of the things the US sells to other nations to be less than the value of the goods it purchases from them. He contends that foreigners have pillaged America and that cheaters have exploited it.[3]

The announcement of the Reciprocal Tariffs

On April 2, US President Donald Trump declared extensive tariffs on imports. Key cabinet officials and union representatives from the steel and auto industries attended the “Make America Wealthy Again” event where he unveiled them. Trump President laid out the U.S. reciprocal tariff rates that more than 180 countries and territories, including European Union members, will face under his sweeping new trade policy. The higher tariffs on countries Trump referred to as the “worst offenders” were characterised as “reciprocal” by White House officials. They were pitched as “reciprocal,” as they aims to match the tariffs that other nations impose on the US.[4]

Here are the new US Tariffs:

• A base rate of 10% on all imports, which applies to almost all products coming into the US. The nations with which the US maintains a trade surplus are likewise subject to this rate.

• Higher “reciprocal” taxes on commodities coming from nations and areas that have trade deficits or anti-competitive policies deemed by the US.

• the revocation of the de minimis rule, which permits duty-free entry into the US for shipments under $800 from Hong Kong and China

• 25% tax on certain motor parts, vehicles, and trucks.

The adjustments show that the United States has given up on the World Trade Organization’s (WTO) “most-favored-nation” (MFN) principle, which states that any trade advantage given by one WTO member to another must be given to all members unless it was negotiated as part of a trade agreement. WTO members are required to charge all members the same rate for the same product, even though they are free to apply various rates to different products.[5]

High Tarrifs on major trade partners

Policies like currency manipulation, weak labour and pollution restrictions, and strict regulations that prevent American goods from entering other markets are all intended to be captured by the reciprocal rates. Trump administration officials have singled out a group of nations they dubbed the “Dirty 15,”  a reference to the 15% of countries expected to be hit hardest by the new reciprocal tariffs given their trade surplus with the U.S

With 46% for Vietnam, 24% for Japan, 25% for South Korea, 26% for India, 32% for Taiwan, and 36% for Thailand, the European Union will be subject to a 20% U.S. tariff rate.

While China, which had the largest 2024 trade surplus with the U.S. at $295 billion, will get a 34% reciprocal tariff rate. When combined with Trump’s 20% February duties imposed over the U.S. fentanyl overdose epidemic, Treasury Secretary ‘Scott Bessent’ stated this increased to 54%. In his campaign for the 2024 election, Trump pledged to impose a 60% tariff on Chinese goods.

The baseline 10% rate was still applied to Singapore, Brazil, and Britain, all of whom had trade deficits with the United States the previous year. According to White House officials, if their policies were more equitable, many nations would have greater deficits with the United States.

However, despite having a $2.5 billion goods trade surplus with the United States in 2024, according to the U.S. Trade Representative’s office, Russia was not included on Trump’s list of tariffs.[6]

Canada and Mexico are exempt from the 10% baseline rate because they were already targeted during Trump’s administration. The White House announced that it will handle both nations according to the structure outlined in Trump’s earlier executive orders, which levied tariffs on both nations as part of the administration’s attempts to address border concerns and the flow of fentanyl into the US. Prior to declaring some exemptions and delays, Trump had set the tariffs at 25% on all goods coming from both countries.[7]

 Why tariffs are a key part of Trump’s agenda

Trump claimed in his first weeks in office that he was punishing Canada, Mexico, and China with tariffs for their failure to do more to halt the flow of fentanyl into the US. Additionally, Trump has used tariffs as a bargaining tool to pressure nations into making concessions. For example, he threatened to impose taxes on Colombia if it refused to accept the deportation of its nationals.

The latest taxes, according to Trump, are a kind of revenge against nations who imposed their own duties on American exports. He has stated that by penalizing businesses that manufacture their goods abroad, his tariffs will encourage businesses to relocate their manufacturing to the United States. He has also said tariffs are a way to raise revenue for the federal government and suggested tariffs could replace income taxes. [8]

Moreover, Tariffs would largely reduce and balance the US trade deficit, increase income, reshore manufacturing, generate jobs, and encourage American innovation. As well as, minimizing supply-chain vulnerabilities and crucial dependencies, particularly in the defense industry, and pursuing additional policy goals like lowering illegal immigration and addressing the fentanyl problem. The administration then noted that tariffs are an effective tool for achieving economic and strategic objectives. Also, they help to bring manufacturing and jobs back to the United States.

On the other hand, although, Reciprocal tariffs were said to be aimed to match the tariffs other countries charge the United States but in reality, the methodology behind Trump’s attempt to rebalance trade has nothing to do with the tariff rate that foreign countries impose on the US.

Instead, the Trump administration employed a wildly simplistic calculation that it claimed took into account a wide range of factors, including Chinese investment, suspected currency manipulation, and laws from other nations. According to the administration’s formula, a nation’s trade deficit with the US is equal to half of its exports to the US. That’s all.

Obviously, the president is effectively taking an aggressive approach to a long list of complaints by using the trade deficit between the US and other nations as a scapegoat. Furthermore, the ambiguous calculation may have wide-ranging effects on the nations that America depends on for its commodities as well as the international businesses that provide them. The Trump administration focuses on countries who have significant trade surpluses with the US compared to their exports to the US, as it doesn’t seem like any tariffs were applied in determining the rate.[9]

Significantly, to avoid any legal challenges, The Trump administration has justified tariffs by saying that unfair “foreign trade and economic practices have created a national emergency and that responsive tariffs were necessary to strengthen the international economic position of the United States and protect American workers. Notably, they utilized the International Emergency Economic Powers Act (IEEPA), which gives the president the authority to control imports when the National Emergencies Act declares a national emergency.

Earlier this year, the administration also utilized IEEPA to slap tariffs on Canada, Mexico, and China because of an inflow of fentanyl. Legal experts contend that tariffs ought to be used in accordance with trade regulations that need congressional or WTO scrutiny, but this was the first occasion that IEEPA was invoked to support the application of tariffs in this manner.[10]

How the world is responding to the “Reciprocal Tariffs”

A number of world leaders have already resisted the most recent tariffs, which were set at a minimum of 10% and can increase to 50% for the most affected nations. Some have called for a chance to negotiate in order to prevent a full-scale trade war, while others have promised quick countermeasures that could effectively force economies everywhere to become more isolated.

China promised to implement its own countermeasures after being hit with a 34% reciprocal tax on top of the 20% tariffs already in place on Chinese products. China calls on the United States to promptly lift its unilateral tariffs and engage in fair and productive discussion with its trading partners to settle disagreements.

The reciprocal tariffs are an act of unilateral bullying, infringes international trade regulations, and undermine other parties’ legitimate rights and interests. China asserts that protectionism is not a workable solution and that there are no winners in a trade war. China will take all necessary steps to protect its legitimate rights and interests, and they fiercely oppose the entire new tariff structure.[11]

In response to U.S. President Donald Trump’s tariffs, European Union nations will likely approve a first batch of targeted countermeasures on up to $28 billion worth of U.S. imports, ranging from diamonds to dental floss, in an effort to show unity in the coming days.

In a move that some worry may develop into a worldwide trade war, the EU would join China and Canada in putting retaliatory tariffs on the United States, driving global economies into recession and raising the cost of goods for billions of people.[12] Consequently, President Donald Trump stated that he is not backing down anytime soon from the implementation of the broad tariffs he announced on April 2 and threatened to impose further 50% tariffs on China if Beijing does not remove its retaliatory taxes by tomorrow.[13]

Notably, The EU has offered the United States a “zero-for-zero” tariff scheme seeking to avoid a tit-for-tat trade war. In an effort to prevent a tit-for-tat trade war, the EU has proposed a “zero-for-zero” tariff plan to the US.[14]

Subsequently, Canadian Prime Minister Mark Carney has promised to quickly and decisively respond to US President Donald Trump’s tariffs. Trump has previously targeted Canada with various measures, thus it was exempted from the new uniform 10% tariff on US goods that will be applied globally. However, there was no assurance of any exemption from Trump’s proposed 25% tax on American imports of automobiles built abroad, which may have a significant negative impact on Canada.[15] Consequently, Canada will impose a 25% car tariff on U.S.-imported vehicles in line with U.S. President Donald Trump’s policies. As they grudgingly implement these measures, the prime minister declared that he will be retaliating for those tariffs in methods that are meant to have the greatest impact in the United States and the least damage in Canada. [16]

Conclusion:

President Donald Trump believes that tariffs are the answer to his economic problems. Tariffs is his universal economic instrument that can help America regain its manufacturing dominance, hold other countries accountable for important issues, restore the trade balance, and bring in large sums of money to help close the US deficit and lower tax burdens for Americans.

Therefore, Trump has shaken up a more than 75-year-old global trading system with a new baseline 10% U.S. tariff on goods from all countries and higher reciprocal tariff rates for countries that his administration believes challenge the U.S. imports

Ever since Trump shocked the world with his sweeping tariff plan, tariffs are expected to push up prices across a range of imported goods, as firms pass on some or all of their increased costs. Additionally, some businesses may choose to import fewer or no foreign items, which could raise the cost of those that are accessible.At the same time, Trump’s announcement of further tariffs caused significant declines in global financial markets, particularly those in Europe and Asia, increasing the likelihood of a recession to 50%.

Hence, the EU has offered a “zero-for-zero” tariff plan to the US, China responded with retaliatory taxes and Canada will act with purpose and force.

References:

[1] Clarke, J. (2025, April 7). What are tariffs, how do they work and why is Trump using them?https://www.bbc.com/news/articles/cn93e12rypgo https://www.bbc.com/news/articles/cn93e12rypgo

[2] How tariffs work and why they are a key part of Trump’s agenda. (2025, April 7). NBC News. https://www.nbcnews.com/politics/economics/how-tariffs-work-why-trump-wants-them-who-pays-for-them-rcna200015

[3] Clarke, J. (2025, April 7). What are tariffs, how do they work and why is Trump using them?https://www.bbc.com/news/articles/cn93e12rypgo https://www.bbc.com/news/articles/cn93e12rypgo

[4] Trump’s ‘reciprocal’ tariffs aren’t quite what they seem. Here’s the real story. (2025, April 5). CNN Business. https://edition.cnn.com/2025/04/05/business/trump-reciprocal-tariffs-real-numbers/index.html

[5] The new US tariffs. (n.d.). GMFUS. https://www.gmfus.org/news/new-us-tariffs

[6] What’s in Trump’s sweeping new reciprocal tariff regime. (n.d.). Reuters. https://www.reuters.com/world/us/whats-trumps-sweeping-new-reciprocal-tariff-regime-2025-04-03/

[7] Epstein, K. (2025, April 3). Trump’s tariffs on China, EU and more, at a glance. https://www.bbc.com/news/articles/c1jxrnl9xe2o

[8] How tariffs work and why they are a key part of Trump’s agenda. (2025, April 7). NBC News. https://www.nbcnews.com/politics/economics/how-tariffs-work-why-trump-wants-them-who-pays-for-them-rcna200015

[9] Trump’s ‘reciprocal’ tariffs aren’t quite what they seem. Here’s the real story. (2025, April 5). CNN Business. https://edition.cnn.com/2025/04/05/business/trump-reciprocal-tariffs-real-numbers/index.html

[10] The new US tariffs. (n.d.). GMFUS. https://www.gmfus.org/news/new-us-tariffs

[11] Jeyaretnam, M., & De Guzman, C. (2025, April 4). ‘Inflation Day rather than Liberation Day’: How the world is reacting to Trump’s latest tariffs. TIME. https://time.com/7274195/trump-reciprocal-tariffs-world-responses-china-eu-countries-leaders-countermeasures/

[12] EU seeks unity in first strike back at Trump tariffs. (n.d.). Reuters. https://www.reuters.com/markets/eu-seeks-unity-first-strike-back-trump-tariffs-2025-04-06/

[13] Trump meets with Netanyahu as tariffs rattle Wall Street. (n.d.). CNN Politics. https://edition.cnn.com/politics/live-news/trump-tariffs-netanyahu-news-04-07-25/index.html

[14] Verhelst, K. (2025, April 7). EU offers Trump removal of all industrial tariffs. POLITICO. https://www.politico.eu/article/eu-offers-trump-removal-of-all-tariffs/

[15] Yousif, N. (2025, April 3). Canada will respond to Trump tariffs “with purpose and with force”, Carney says. https://www.bbc.com/news/articles/cdde0r6eqy5o

[16] Gillies, R. (2025, April 3). Canadian prime minister says Canada will match US auto tariffs | AP News. AP News. https://apnews.com/article/canada-prime-minister-trump-trade-war-autos-d15ae5b0bab873450b86ca524afda3ca