Trump signs plan to impose 'reciprocal' tariffs on trading partners

U.S. President Donald Trump on Thursday signed a memorandum directing his administration to determine "the equivalent of a reciprocal tariff with respect to each foreign trading partner."

"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. In other words, they charge us a tax or tariff and we charge them the exact same tax or tariff. Very simple," Trump said at the White House.

According to the memorandum, "it is the policy of the United States to reduce our large and persistent annual trade deficit in goods and to address other unfair and unbalanced aspects of our trade with foreign trading partners."

Under the so-called "Fair and Reciprocal Plan," the administration will work "strenuously" to counter non-reciprocal trading arrangements with trading partners by determining the equivalent of a reciprocal tariff with respect to each foreign trading partner. "This approach will be of comprehensive scope, examining non-reciprocal trade relationships with all United States trading partners," it said.

Under World Trade Organization (WTO) negotiations, "reciprocity" meant overall balance, in terms of concessions given and concessions received, between each country on the one hand and all its trading partners on the other hand, but Trump has redefined the meaning of "reciprocity" to apply on a line item basis, country by country, rather than overall balance, according to Gary Clyde Hufbauer, a nonresident senior fellow at the Peterson Institute for International Economics.

"With reciprocity, as defined by Trump, U.S. tariffs would probably on average 10 to 15 percentage points higher. In my opinion, tariffs actually hurt the U.S. economy, so while they would raise revenue ... they would reduce GDP growth," Hufbauer said.

Observers believe that this logic undermines the traditional principle of overall balance under the WTO framework, potentially leading to trade frictions and negotiation deadlocks, and prompting other countries to take countermeasures in response to U.S. tariff increases.