During his initial months in office, Donald Trump has been vocal in his criticism of the US’s major trading partners, accusing them of unfair practices and taking advantage of the country’s economy.
In a recent social media post, the president stated, “For DECADES we have been ripped off and abused by every nation in the World, both friend and foe. Now it is finally time for the Good Ol’ USA to get some of that MONEY, and RESPECT, BACK. GOD BLESS AMERICA!!!”
Trump has designated April 2 as “Liberation Day”, where he intends to implement a significant escalation of his trade policies, potentially imposing steep tariffs on the US’s top trading partners as he disrupts established global trade norms.
What to Expect on “Liberation Day”
There are three main components to Trump’s plans, with a considerable amount of uncertainty surrounding them.
Firstly, the findings from various investigations will be revealed. Following his inauguration, Trump initiated investigations into the US’s trade relationships, with the results set to be delivered on April 1.
The centerpiece of April 2 will be the announcement of reciprocal tariffs, intended to address what the administration sees as imbalanced trade relationships and unfair practices.
Additionally, the White House is considering unveiling a range of sector-specific tariffs on that date, with Trump already announcing tariffs on cars. Further tariffs on products like chips and pharmaceuticals may also be introduced at a later time.
On April 2, Trump has hinted at the reimposition of 25% tariffs on all imports from Canada and Mexico, after offering a temporary exemption to goods compliant with the 2020 trade agreement between the three countries.
Understanding Reciprocal Tariffs
The Trump administration aims to impose tariffs on a country-by-country basis, targeting trading partners with higher tariffs on the US than what the US imposes back.
Unique to this approach is the US’s intention to retaliate against countries using non-tariff trade barriers such as regulations, subsidies, or taxes. The EU’s value-added tax and digital services taxes have been highlighted as examples of unfair trade practices.
Calculating specific tariff rates to counter another country’s taxes or regulations is known to be complex and time-consuming.
Lori Wallach, from the think-tank Rethink Trade, suggests a combination of sector-specific tariffs applying to all countries for key goods, and country-specific tariffs on nations with significant trade surpluses may be utilized.
Implementation of Measures
If immediate tariffs are to be applied on Wednesday, Trump may need to invoke emergency powers rather than the usual trade measures he has employed previously. Emergency powers could allow tariffs of up to 50% to be imposed under laws like the International Emergency Economic Powers Act or Section 338 of the Tariff Act of 1930.
Trade experts suggest that tariffs imposed under emergency powers could take effect swiftly, potentially instantly in some cases.
Existing Tariffs by Trump
Trump has already imposed additional tariffs on Chinese imports, steel, and aluminum, along with secondary tariffs on countries purchasing oil and gas from Venezuela. These measures may cumulatively impact US trading partners and escalate trade tensions.
Various countries have retaliated with their own tariffs on US goods, creating a cycle of trade disputes.
Potential Responses from Affected Countries
US trading partners like the EU, China, and Canada have retaliated with tariffs on American goods, aiming to counter Trump’s aggressive trade policies.
Other countries, including Mexico and the UK, have chosen not to retaliate and are seeking diplomatic solutions instead.
Countries at Risk
The list of countries potentially targeted by reciprocal tariffs includes Japan, India, the EU, and Brazil, among others.
The US Trade Representative’s office has expressed interest in all G20 countries and those with significant trade deficits with the US, encompassing a wide range of nations.
Inflationary Concerns
Federal Reserve officials are monitoring the situation closely for signs of broad and enduring inflationary pressures resulting from the tariffs.
While past tariffs did not have a lasting impact on prices, the current measures could be more disruptive, especially given the ongoing economic challenges faced by businesses and households.
Additional reporting by Claire Jones in London; data visualization by Alan Smith and Ray Douglas