Trump announces reciprocal tariffs
Here’s the announcement, which came yesterday:
And on trade, 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.
Sounds kind of good to me, but I freely admit that economics is not my strong suit. However, surprisingly, even the BBC can’t seem to find anything too terrible to say about these tariffs. An excerpt:
Trump cast his plan for so-called reciprocal tariffs as part of his effort to bring investment to the US and boost manufacturing.
“If you build your product in the United States, there are no tariffs,” he said, adding that he was “just doing what was fair”. …
Historically, the US has championed free trade and kept the majority of its tariffs low, except on certain products such as footwear and, more recently, steel and aluminium.
The US has an average tariff rate of 3.4%, compared with an average rate of 5% in Europe, according to the WTO. …
John Cassidy, chief executive of Red Cedar Investment Management, said Trump’s string of rapid-fire tariff announcements had unnerved Wall Street, which “does not like the unknown”.
But he warned against over-reacting, noting that tariffs that Trump imposed during his first term had a relatively mild impact on the US economy.
“I think Trump’s playing a hand here and I think he’s got a very strong hand to play,” he said.
However, Alex Durante, economist at the Tax Foundation, said it remained to be seen what changes could result from Trump’s moves.
He does not think tariffs are the best strategy for dealing with trade complaints, given the costs and uncertainty they introduce for US firms and risks of retaliation.
The gist of it is that nobody seem to know what will happen. But the objections seem rather tepid to me.
Your mileage may differ.
I am one of those who doesn’t know what will happen, but I am cautiously optimistic. I am not a libertarian free-trader, unless it’s between the 50 states.
These tariffs obviously have the goal of getting other countries to drop their tariffs and move both sides toward freer trade; the tariffs themselves are not the desired goal. There’s little to object to.
What Trump wants is for manufacturing to locate/relocate to the US where there will be no tariffs and even lower corporate tax rates.
I agree with Brian E, tho suspect there may be even more benefits to it.
Brian E might not know much about politics & War, but is a whiz on monetary ‘Stuff‘, remodeling, and exercise bikes…
Years ago, Warren Buffett proposed an approach to the balance of trade involving Import Certificates. I don’t know if he still supports this approach or not, but it’s interesting. The original Fortune article is still paywalled, but I found the whole thing here:
https://money.cnn.com/magazines/fortune/fortune_archive/2003/11/10/352872/index.htm
Trump mentioned non-tariff barriers, and said the we know how to calculate a tariff-equivalent value for such barriers. Which reminded me of something…
Many years ago, I had a nice lunch with a group of European customers officials. They were swapping stories about various methods that had been used over time to discourage imports that were felt to be threats to domestic employment. One classic: France discouraged Japanese imports for some product…VHS or DVD players, IIRC…by requiring them to clear customers at some remote and understaffed facility.
I don’t know how you put a dollar-equivalent tariff value on something like this, much less under trade barriers that fall under ‘safety regulations.’
Asked Grok to refresh my memory on the France things, and it came though:
https://x.com/i/grok?conversation=1890547872648618070
I don’t have any particular problem with reciprocal tariffs. Free trade is a fine ideal, but we don’t have it. Perhaps equalizing tariffs will move the world in that direction.
There is, IMO, something about all this that isn’t being talked about. It’s the Value Added Tax (VAT). Most European countries, Canda, Australia, New Zealand, etc. have the VAT. It’s disguised in the price of goods made in the country. It’s a sort of sales tax. It’s a stealth tax. And it’s the main reason they can run socialist systems of benefits.
In the Puget Sound area, we used to see a lot of Canadians who came down here to buy the same items that cost at least 15% more in BC. There was a limit of $300 or so per day that they could take back into Canada. Apparently, they could save quite a bit that way.
That traffic has decreased in the last three years because the Canadian dollar is down to 70cents per U.S. dollar, and our products actually cost them more now.
The Canadian government puts tariffs on our exports to them to raise the price to the Canadian level. Same with most European countries. It’s a financial game that countries have played since international trade began.
Free trade seems unobtainable, but reciprocal tariff trade might work. Most people can see that it’s fair. Many of those we trade with feel we are so rich we should accept getting the short end of trade deals. Trump obviously disagrees. We’ll see if those countries that have big trade surpluses with us will be willing to accept reciprocal tariffs. If not, we could be in for a rough patch.
David Foster, thanks for the link to Warren Buffet warning about the cost of unfair tariffs a.k.a. free trade.
For years I’ve been sounding the alarm that a balance of trade deficit is just offshoring the countries wealth.
‘Free traders’ don’t seem to understand the concept.
@Brian E:a balance of trade deficit is just offshoring the countries wealth. ‘Free traders’ don’t seem to understand the concept.
No, they understand it, and they reject it, because it’s based on selective and incomplete accounting of benefits and costs, and confusion about wealth and the flow of money.
But I’m not sure what else there is to say that hasn’t been said over the hundreds of years people have argued about this.
That I disagree with you doesn’t mean I don’t understand you. That I don’t always choose to argue with you doesn’t mean I have nothing I can say for my position, or that I’ve never heard anything that you say for yours.
a balance of trade deficit is just offshoring the countries wealth.
I assume you’re saying this because if I buy a product manufactured in, say, South Korea my dollars go there, and thus the wealth is over there now? This is a fundamental misunderstanding of trade. First of all, I have gotten wealth myself in the form of the product that I bought. But, you might say, the money, the dollars are over there, but in fact they’re not. They are coming right back here. How can I say that with such confidence? Because they’re is only one use for a U.S. dollar – to buy U.S. goods or services. It has to come back this way eventually. I will grant you that the foreigner who has gotten ahold of those dollars may use them to buy shares in say, Microsoft, or a treasury bond, and you may not consider those “goods”, but that is what Niketas Choniates is getting at when he refers to, selective and incomplete accounting of benefits and costs.
The very term “trade deficit” only has meaning if one counts certain goods and services, but not others. In the end, there is no deficit.
@Mike Plaiss: Brian E, or anyone else, not to pick on him, has a number of directions he can go in answer to a challenge on this topic. Most of them would involve questioning an auxiliary assumption, like what currency is vs what it should be (Brian E happens to favor metal), or what other countries are actually doing with the dollars they get.
(For example, they could be trading for things with each other in terms of dollars, and in fact they do, oil is traded in dollars. Same would be true if we were using gold for money, they’d be using “our” gold to trade with each other.)
Another one would be what’s “real” goods and services vs evil “financialization”. For a lot of people manufacturing and agriculture are “real” sources of wealth, non-finance services are sometimes acceptable but usually treated as somehow inferior and not anything a self-respecting country should pride itself on doing, and insurance, banking, and finance are just “financialization”, a waste of effort that could be used for agriculture and manufacturing. (Brian E is big on farming and manufactures but not sure where he is on the others.)
So if you have the appetite to chase down rabbit holes, arguing all the while if it’s a real rabbit hole or actually a crucial point, try arguing free trade online. Not the only topic where this happens but something about it just lends itself to this and sometimes I have the energy for that and sometimes I don’t.
Like I said, not picking on Brian E, who’s a decent dude and not easily provoked into nastiness , trolling, or snark. I disagree with him even on the things I agree with him, but I’m glad he’s here.