Trump Pushes for Tariffs to Counter Trade Imbalances

Donald Trump has announced his intention to impose new tariffs on imports to the United States, asserting that other countries apply higher tariffs on American goods, and claiming that the U.S. is being treated unfairly by both its allies and adversaries in trade.

Under the World Trade Organization (WTO) framework, countries are permitted to impose tariffs on foreign goods, but these tariffs must not discriminate between nations. For example, a country could impose a 10% tariff on rice imports and a 25% tariff on imported cars. However, WTO rules prohibit discriminating against specific countries in this process.

For instance, Tanzania cannot charge a 2% tariff on wheat from Russia while imposing a 50% tariff on wheat from Ukraine. In international trade, countries must apply the same tariff rate on identical products, regardless of their origin.

Exceptions occur in cases where two nations sign a free trade agreement, allowing them to eliminate tariffs on each other’s goods but maintain tariffs on imports from other countries.

Trade tariff averages vary from country to country, with each nation reporting these to the WTO. In 2023, the U.S. had an average tariff rate of 3.3%, slightly lower than the UK's average of 3.8%. This figure is also lower than the European Union’s 5% average and China’s 7.5%.

The U.S. tariff rate is substantially lower compared to some of its other major trading partners. For instance, India’s average tariff rate is 17%, while South Korea’s is 13.4%. However, due to trade agreements, imports to the U.S. from countries like Mexico and Canada are not subject to tariffs.

This supports Trump's claim that certain countries impose higher tariffs on U.S. goods than the U.S. does on theirs. Tariffs often result in higher prices for U.S. products in these countries, potentially affecting U.S. exporters compared to foreign sellers.

Economists typically argue that these tariff costs are ultimately borne by consumers, as the price of imported goods rises.

The consequences for countries imposing high tariffs on imports are felt domestically, as consumers in those nations face higher prices for foreign products.

Trump’s Proposed Tariff Action: On February 10, Trump proposed a new tariff scheme that would mirror the tariff rates imposed by other countries on U.S. goods. He stated, "If they charge us high tariffs, we will charge them high tariffs. If it’s 25%, we will impose 25%. If it’s 10%, we will impose 10%."

This approach could potentially breach WTO rules, which require that tariffs be non-discriminatory for similar products, regardless of their country of origin.

For example, if the U.S. imposes a 9.4% tariff on goods from Vietnam while applying a 3.8% tariff on goods from the UK (the UK’s average), this would violate WTO guidelines. However, the U.S. could argue that the target country is already violating WTO rules, which could make the tariffs defensible under WTO retaliation clauses.

An alternative scenario could see Trump pursuing uniform tariffs across regional blocs. For instance, the European Union imposes a 10% tariff on cars imported from outside the bloc, including the U.S. Meanwhile, the U.S. applies only a 2.5% tariff on vehicles from abroad, including those from the EU. In this case, the U.S. could impose a 10% tariff on cars from the EU to restore balance.

U.S. Tariff Practices: If Trump aims to apply reciprocal tariffs based on what other nations impose on American goods, the U.S. may also have to lower some of its own tariffs, rather than raising them. For example, the U.S. currently charges over 10% on imported dairy products, while New Zealand—one of the world’s leading dairy producers—imposes no tariffs on imported dairy. Lowering dairy tariffs could face political resistance from U.S. lawmakers in dairy-producing states like Wisconsin.

Furthermore, applying equivalent tariffs across various sectors could challenge U.S. industries, such as the automotive sector. The U.S. imposes a 25% tariff on trucks imported from abroad, including the EU, while the EU’s tariff on imported trucks is only 10%. If the U.S. seeks to level the playing field, it may have to lower its own truck tariffs.

Although Trump has indicated that a full reciprocal tariff system may not be his ultimate goal, his proposed measures signal a shift toward a more aggressive stance on trade imbalances.