Reciprocal tariffs: Why has US imposed reciprocal tariffs?

The U.S. president’s announcement of Reciprocal Tariffs marks a significant shift in global trade policies. The move introduces country-specific new tariffs for over 180 countries with a 10% baseline tariff. Read here to learn all about the move’s geopolitical significance.

The Fair and Reciprocal Plan is a trade policy introduced during the Trump administration to address perceived non-reciprocal trading arrangements between the U.S. and its global trading partners.

However, it may also increase costs for U.S. consumers and businesses, potentially triggering retaliatory measures from trade partners like India, China, and the European Union.

U.S. Share in Global Trade (2010–2022)

• In 2010: 12% of global merchandise exports were sent to the U.S.
• In 2019 (Pre-Pandemic): The U.S. share increased slightly to 13%.
• In 2022 (Post-Pandemic): The U.S. accounted for 4% of global exports.

This data highlights a slow increase in the U.S. share of world exports despite aggressive trade policies. More importantly, 87% of global merchandise exports continue to be traded among countries excluding the U.S., indicating a shift towards regional trade alliances and diversification of markets.

Key Highlights of the Reciprocal Tariff Policy

Higher Tariffs on Trade Deficit Countries:

• India: 26% reciprocal tariff (half the rate India imposes on U.S. imports).
• China: 34%
• Japan: 24%
• European Union: 20%

Objective of Reciprocal Tariffs:

• Address trade imbalances by imposing higher tariffs on countries where the U.S. runs a trade deficit.
• Promote domestic industries through reindustrialization.
• Retaliate against unfair trade practices of certain nations.

Assessment of Trade Imbalances:

The U.S. evaluates non-reciprocal trade relationships based on:

• Tariffs imposed by foreign countries on U.S. exports.
• Discriminatory taxes affecting American businesses.
• Non-tariff barriers, including subsidies and restrictive regulations.
• Exchange rate manipulations give foreign exporters an advantage.
• Other trade practices that obstruct fair competition for U.S. firms.

What Are Reciprocal Tariffs?

Reciprocal tariffs are import duties imposed by a country in response to the tariffs placed on its exports by another country.

They are designed to create a level playing field in international trade by ensuring that both trading partners impose similar tariff rates on each other’s goods.

Key Features of Reciprocal Tariffs:

• Response to Tariff Imbalances – If one country imposes high tariffs on imports, the affected country may respond with equivalent tariffs on the exporting country’s goods.
• Trade Negotiation Tool – Often used in trade agreements to encourage fair competition.
• Countermeasures Against Unfair Practices – Targets protectionist policies like excessive import taxes, subsidies, or trade restrictions imposed by other countries.
• May Lead to Trade Wars – If both countries continue to impose higher tariffs in retaliation, it can escalate into a trade war, increasing costs for businesses and consumers.

Examples of Reciprocal Tariffs

U.S.–India Tariff Dispute (2024-2025)

• The U.S. announced a 26% reciprocal tariff on Indian goods, responding to India’s 52% tariff on U.S. imports.
• The goal was to equalize trade conditions and address trade imbalances.

U.S.–China Trade War (2018-2019)

• The U.S. imposed high tariffs on Chinese imports, citing unfair trade practices.
• China retaliated with reciprocal tariffs on American products, particularly in agriculture and technology sectors.

EU–U.S. Steel and Aluminum Tariffs (2018)

• The U.S. imposed 25% tariffs on European steel and 10% on aluminum.
• The EU responded with similar tariffs on U.S. products like whiskey, motorcycles, and orange juice.

Advantages & Disadvantages of Reciprocal Tariffs

Implications of the Fair and Reciprocal Plan

For the U.S.:

• Encourages domestic industries by reducing reliance on imports.
• Attempts to level the playing field in international trade.
• Could lead to higher prices for American consumers due to import tariffs.

For Global Trade:

• May trigger retaliatory tariffs from other nations, increasing trade tensions.
• Strengthens the trend towards regional trade blocs, reducing U.S. influence.
• It could disrupt global supply chains, making trade costlier and more complex.

For India:

• Increased tariffs on Indian exports to the U.S. could impact trade competitiveness.
• Potential renegotiation of trade deals and tariff adjustments.

Conclusion

The Fair and Reciprocal Plan reflects a shift towards protectionist trade policies under Trump, aiming to counter trade imbalances and boost the domestic industry.

However, the modest increase in the U.S. share of world exports suggests that other countries have adapted by diversifying trade partners, potentially limiting the effectiveness of such policies in the long run.

The U.S. Reciprocal Tariff Policy signals a major shift in global trade dynamics, moving towards protectionism and economic self-reliance. While it aims to protect domestic industries, it also raises concerns about trade wars and economic fragmentation in an already uncertain global economy.

Frequently Asked Questions (FAQs)

What is a reciprocal tariff?

Ans: A reciprocal tariff is a tax or trade restriction that one country places on another in response to similar actions taken by that country. The idea behind reciprocal tariffs is to create balance in trade between nations.

What is the Reciprocal Tariff Act?

Ans: On April 2, 2025, President Donald Trump issued an executive order (the Reciprocal Tariffs Executive Order or Executive Order) imposing a 10% baseline reciprocal tariff on nearly all U.S. trading partners, effective April 5, and an additional reciprocal tariff on 57 countries, effective April 9.

What is the base tariff rate under Trump’s new policy?

Ans. A 10% base tariff will be imposed on all countries, a significant increase from 2.5%.

How does India’s tariff rate compare to other countries?

Ans. India faces a 26% tariff, which is lower than China’s 34%, Vietnam’s 46%, and Bangladesh’s 37%.

Which Indian export sector benefits from Trump’s tariffs?

Ans. Textiles, garments, and pharmaceuticals (India’s largest exports) are positively impacted, especially in comparison to other nations.

Related articles:

• Non-tariff barriers to trade
• Trade war
• Global trade disruptions