The high price of U.S.'s reciprocal tariffs on global trade

Editor's note: U.S. President Donald Trump set a 10 percent baseline tariff across the board, with 60 countries hit with even higher rates on Wednesday. Will tariffs make America great again as Trump promised? CGTN has introduced a five-part series – U.S., Biggest Loser from Tariffs – to analyze the impacts of the escalating trade war. The second article of the series is written by Stephen Ndegwa, who is a special commentator for CGTN and the executive director of South-South Dialogues, a Nairobi-based communications development think tank. The article reflects the author's opinions and not necessarily the views of CGTN. 

U.S. President Donald Trump's April 2 announcement of new reciprocal tariffs marks another aggressive turn in his administration's trade policy, reflecting a deepening shift toward protectionism under the pretext of fairness.

Dubbed "Liberation Day," these measures impose a universal 10 percent baseline tariff on all U.S. imports, with significantly higher rates targeting specific countries – 34 percent on China, 20 percent on the European Union and 24 percent on Japan. A 25 percent tariff has also been levied on foreign cars and auto parts. While the rhetoric of reciprocity may appeal to domestic political sentiments, the economic consequences for global trade and regional economies could be profound.

Since assuming office, the Trump administration has treated tariffs as a primary instrument of economic leverage, often wielding them as a blunt tool to address perceived trade imbalances. The logic behind the new reciprocal tariffs suggests that if a country imposes tariffs on American products, the U.S. will respond with equivalent or higher tariffs on imports from that country. In practice, however, it risks escalating trade tensions and triggering retaliatory measures from key trading partners.

The immediate impacts of these tariffs will be wide-ranging, affecting key American exports, including agricultural products such as soybeans and corn. As targeted countries respond quickly, these exports will face higher barriers in foreign markets. The manufacturing sector, already dealing with supply chain disruptions and rising input costs, will face additional strain as imported steel, aluminum and automotive components become more expensive.

Technology firms that depend on complex global supply chains face higher production costs and restricted market access. The effects will not be confined to the U.S. market alone. Manufacturers worldwide that rely on U.S. intermediate goods will see increased costs, potentially fueling inflation across multiple economies.

Predictably, several economies have begun preparing for the fallout. The European Union (EU) has indicated that it will respond with targeted tariffs on prominent U.S. exports such as bourbon, motorcycles and jeans, a strategy it has successfully employed in previous trade disputes. In response to the U.S.'s 2018 steel and aluminum tariffs, the EU imposed duties on $3.2 billion worth of U.S. goods, including Harley-Davidson motorcycles and Levi's jeans. The resulting pressure forced Harley-Davidson to announce plans to relocate part of its production overseas to avoid the tariffs, underscoring the tangible business costs of tit-for-tat measures.

Japan, known for its cautious approach to trade conflicts, may face pressure. In 2019, Japan accounted for 5.7 percent of U.S. imports and was previously targeted by Trump's threats to impose auto tariffs, which could replay under the reciprocal tariff framework. Japan's automotive sector, which exports about $40 billion worth of vehicles to the U.S. annually, may face fresh trade barriers, raising production costs and threatening jobs.

China, already engaged in a protracted trade conflict with the U.S., is expected to impose its own retaliatory tariffs, mainly targeting American agricultural and technology exports. In 2018, when Trump imposed tariffs on $250 billion worth of Chinese imports, China retaliated with tariffs on $110 billion worth of U.S. goods, leading to a 75 percent drop in U.S. soybean exports to China, from $12.2 billion in 2017 to just $3.1 billion in 2018. U.S. farmers, particularly in the Midwest, saw steep declines in income, prompting the U.S. Department of Agriculture to provide $12 billion in emergency aid to offset the losses.

The broader impact on regional economies could be severe. Emerging markets in Asia and Latin America, which depend heavily on trade with both the U.S. and China, could face reduced export volumes and currency volatility. Southeast Asian economies with integrated supply chains tied to both China and the U.S. could see rising production costs and reduced export demand. The International Monetary Fund estimated that the 2018–2019 U.S.-China trade war shaved 0.1 percent off global GDP growth. A similar disruption could now unfold under these new reciprocal tariffs.

Meanwhile, European manufacturers, already navigating the complexities of Brexit and sluggish domestic growth, will encounter new headwinds as supply chains are disrupted and export markets tighten. Germany’s automotive sector, which exported $28.7 billion worth of vehicles and car parts to the U.S. in 2019, would be hit hard if reciprocal tariffs target cars, likely leading to job cuts and production slowdowns.

The Trump administration's protectionist stance has weakened investor confidence and slowed capital flows, compounding the negative impact on global markets.

Trade imbalances are often driven by structural economic factors, including differences in labor costs, industrial capacity and domestic consumption patterns, that tariffs alone cannot resolve. However, the global economy's interconnected nature means that targeting one country or sector often produces unintended ripple effects elsewhere.

The Trump administration risks damaging American competitiveness and destabilizing the broader global trade architecture by prioritizing short-term political gains over long-term economic stability. In the end, reciprocal tariffs may accelerate the fragmentation of international trade networks, increase geopolitical tensions and leave U.S. businesses and consumers paying the price.

(If you want to contribute and have specific expertise, please contact us at opinions@cgtn.com. Follow @thouse_opinions on Twitter to discover the latest commentaries in the CGTN Opinion Section.)