Why US "Reciprocal tariffs" are doomed to fail

Editor's note: Luo Hairong is an assistant researcher at the Institute of World Economy at Shanghai Academy of Social Sciences. The article reflects the author's opinion, and not necessarily the views of CGTN. It has been translated from Chinese and edited for brevity and clarity.

Though only in office for a few months, the new US administration has repeatedly pushed the boundaries of what the world expects as the minimum standards for US policy. From imposing tariffs on trading partners in early February under the pretext of fentanyl issues, to levying additional tariffs on steel and aluminum products, and now launching a global tariff war in the name of "reciprocal tariffs", tariffs have become synonymous with US policy. In an era of sluggish global economic growth, these moves by the US will undoubtedly cause serious negative repercussions on the world economy. Driven by far-fetched logic, a hostile stance, and capricious measures, the US's unilateral actions are bound to encounter widespread opposition, achieve little, and ultimately backfire.

I. The US's tariff lies: From fentanyl abuse to the "reciprocal tariff formula"

The US has continued to fabricate lies for its unlawful tariff hikes. On the fentanyl issue, it has deliberately distorted a domestic problem related to fentanyl regulation into an external issue with its trading partners, disregarding China's strict fulfillment of its international anti-narcotics obligations and its active cooperation with the international community in this regard. Meanwhile, the US's "reciprocal tariff formula" is riddled with logical errors and inaccuracies. Essentially, the formula cites the US's bilateral trade deficits as the primary basis for imposing tariffs, lacking any semblance of legitimacy. Even economies with which the US runs trade surpluses, or with which it has no trade at all, are subject to a minimum tariff rate of 10 percent. According to foreign media reports, while the "reciprocal tariff formula" references academic work by scholars such as Brent Neiman, it misapplies key variables, significantly inflating tariff rates. Furthermore, it disregards the objective reality that trade volumes fluctuate constantly due to factors such as exchange rates, shipping costs, and industry cycles. Even more glaringly, the formula only accounts for the US's deficits in goods trade, completely ignoring its long-standing surplus in services trade. In particular, the US also prohibits its trading partners from retaliating, which seriously undermines their legitimate right to defend their own interests.

However, the US's attempt to suppress China's development through punitive tariffs has already been ineffective. On the one hand, although the US has unilaterally raised tariffs against China in recent years, significantly narrowing the bilateral trade deficit, diminishing marginal returns have been observed from subsequent tariff hikes. On the other hand, should the US seek to pressure its trading partners into raising tariffs on China and attempt to forge an "anti-China" tariff bloc, China will resolutely defend its own rights and interests. Given the already elevated tariff levels, there are growing concerns that smuggling will thrive for essential goods with low price elasticity. Especially amid mounting economic risks in the US and surging prices due to the tariff war, the US may soon struggle to cover the rising costs of expanded border enforcement needed to combat rampant smuggling, even with the additional tariff revenue.

II. Unilateral US tariff increases undermine global economic and trade order

Since the new US administration took office, following the "America First" principle, the US has abused national security exceptions to impose tariffs at will. In doing so, it has shifted from being a major promoter of economic globalization to one of its principal opponents. After a new wave of withdrawals from international organizations, a "new isolationism" of the US is emerging. On the one hand, driven by the trend of global industrial chains expanding across borders, the US has wielded global supply and industrial chains as weapons and instruments by leveraging its market dominance, suppressing industries in China and other trading partners in order to maintain its hegemonic status. On the other hand, it continues to disrupt the existing international order. For example, it has paused its financial contributions to the World Trade Organization and tightened control over the WTO Secretariat's activities to free itself from institutional constraints.

III. International cooperation cannot tolerate US hegemony

The principle of non-discrimination is an essential cornerstone of the multilateral trading system. The US's arbitrary tariff measures represent a grave breach of core WTO rules, including the most-favored-nation principle and tariff binding commitments. It is also difficult for the US to justify that these measures align with the exception clauses of WTO agreements. Most WTO members have voiced dissatisfaction with the US's unilateral tariff imposition, and regional groups such as ASEAN and the African Group have issued statements affirming their support for the multilateral trading system and expressing concerns about the current international climate. In addition, the US's hardline pressure tactics in negotiations, wielding tariffs as a weapon, have severely damaged its reputation in the international community and eroded the trust of other members, including its own allies.

In sum, the US has fabricated various pretexts to impose tariffs in pursuit of its own interests, severely disrupting the international economic and trade order and hindering global economic development. The international community must stand united against unilateralism, safeguard the multilateral trading system, and do its utmost to maintain stability in the international economic and trade order.