'Reciprocal Tariffs': Disruptors of the Global Trade Order

Editor's note: Liu Chunsheng, a special commentator on current affairs for CGTN, is an associate professor at the Beijing-based Central University of Finance and Economics. The article reflects the author's opinion and not necessarily the views of CGTN.

A Blatant Challenge to the Multilateral Trading System

In the grand chessboard of global trade, the "reciprocal tariffs" strategy recently proposed by the United States is like a boulder thrown into a calm lake, stirring up huge waves. The WTO, acting as the "traffic police" of global trade, exists to ensure that countries conduct trade in a fair, just, and transparent environment through multilateral negotiations and rule-making. Principles like non-discrimination, market openness, and fair trade form the cornerstone of the healthy operation of global trade.

Nevertheless, the US "reciprocal tariffs" completely disregard this rule system that has been established over many years. It bypasses the multilateral framework of the WTO and determines tariff levels unilaterally, guided solely by its own self-interests. This behavior seriously undermines the authority and stability of the multilateral trading system, greatly reducing the credibility of global trade rules. Once this "virus" of unilateralism spreads and other countries follow suit, global trade will plunge into a "rule-less" melee, and the hard-won achievements of the WTO over the years will be in vain.

Severe Disruption to Global Supply Chains and Value Chains

After years of development and integration, global supply chains and value chains have formed a closely-knit pattern where countries are interconnected. Each country identifies its position in the global industrial chain based on its resource endowments and technological advantages, undertaking production and supply tasks at different stages. For example, the production of a smartphone may involve chip design in the US, screen manufacturing in South Korea, assembly in China, and the supply of components from all over the world.

The US "reciprocal tariffs" have brutally disrupted this delicate balance. Take the automotive industry as an example. OECD pointed out in its Global Economic Outlook report that if the US imposes a 10 percent tariff on all its trading partners and faces reciprocal retaliation, the export volume of automobiles and auto parts will decline by approximately 3 percent. As a major consumer and producer of automobiles globally, the US tariff adjustment will directly increase the costs of auto-manufacturing enterprises. To maintain profitability, companies have to adjust their production layouts. They either move production lines back to the US or look for new suppliers in regions with lower tariffs. This process is not only time-consuming but may also lead to the breakdown of existing supply chains. Many countries and enterprises that rely on exporting auto parts will see a significant reduction in orders and face a survival crisis. At the same time, American consumers will have to bear higher car prices due to the cost increase caused by tariffs.

As for the global value chain, "reciprocal tariffs" hinder the optimal allocation of resources. Developing countries originally occupied a place in the low-value-added segments of the manufacturing industry with their labor-cost advantages and were gradually moving towards high-value-added segments. However, high tariffs have made it extremely difficult for their products to enter the US market, hampering their industrialization process. Moreover, US enterprises themselves are unable to obtain the highest-quality and cheapest raw materials and components globally, resulting in a decline in production efficiency and a weakening of their competitiveness in the international market.

Clouds over Global Economic and Trade Growth

From a macro-perspective of global economic growth, the forecasts of major trade institutions have sounded alarm bells. The OECD, in its latest economic forecast report released in March, downgraded the global economic outlook. The global economic growth rate is projected to be 3.1 percent in 2025, 0.2 percentage point lower than the forecast in December 2024. It will further slow down to 3 percent in 2026, 0.3 percentage point lower than the previous forecast. Among the factors, the increase in trade barriers between countries, along with geopolitical and policy uncertainties, have become significant factors contributing to the slowdown in economic growth.

When the US raises tariffs, its own economy is the first to be hit. The international rating agency Fitch forecasts that the US economic growth rate will be 1.7 percent in 2025, 0.4 percentage point lower than the previous forecast, and will further slow down to 1.5 percent in 2026. The tariff hike has led to rising consumer prices, lower real wages, increased corporate costs in the US. The surging policy uncertainties have dampened corporate investment, and the retaliatory measures of other countries have seriously affected US exporters. Imposing tariffs will harm rather than help the US auto industry and endanger the jobs of many Americans. The total imports of automobiles, auto parts, and engines in the US reached a record $474.3 billion last year. After the tariff increase, the costs of auto companies will rise, and layoffs are almost inevitable to maintain profitability. At the same time, the retaliatory tariff measures of other countries against the US will also lead to a reduction in job opportunities in US export-related industries.

The "reciprocal tariffs" policy implemented by the US is short-sighted and self-centered. It has brought unprecedented shocks and uncertainties to the global trade order, severely disrupted global supply chains and value chains, casting a thick shadow over global economic and trade growth and employment. In an era of deep global economic integration, win-win cooperation is the right path. Unilateralism and trade protectionism are doomed to failure. Countries should work together to safeguard the multilateral trading system and jointly resist actions that undermine the global trade order. Otherwise, the ship of the global economy will face the risk of running aground and capsizing in the stormy waves triggered by US unilateral retaliatory tariffs.