United States President Donald Trump has announced plans to implement reciprocal tariffs on foreign trade, meaning imports from international trading partners will face taxes equivalent to those levied on US exports. However, Trump considers structural, regulatory and fiscal hurdles as forms of tariffs.
His primary focus is on the European Union, particularly due to its value-added tax (VAT) – known as IVA in Spanish – which applies universally to all products and is perceived by Washington as a non-tariff trade barrier.
While the tariffs have not been finalised and are not immediately enforceable, this delay suggests that Trump intends to use them as a negotiating tool to reduce the US trade deficit, the largest in the world. This policy could affect almost all countries, with exemptions limited to those that impose no tariffs on US goods.
On Thursday, Trump signed a memorandum in the Oval Office, initiating an administrative review by the US Trade Representative (USTR), the Treasury and the Department of Commerce to design and assess the new tariffs. The memorandum’s full text is yet to be released. This process runs concurrently with an investigation launched on Trump’s first day in office, 20 January, into unfair trade and monetary practices, specifically targeting nations with which the US runs a trade deficit.
The exact tariff rates and implementation timeline for each country remain unclear. The principle of reciprocity will consider various trade, fiscal and monetary barriers, rather than adhering to a strictly symmetrical tariff structure.
During his campaign, Trump pledged to impose equivalent tariffs on countries that tax US products, a promise he reiterated from the Oval Office last week. He highlighted that many countries imposing tariffs on US goods are often viewed as victims of his trade policies, particularly citing the EU’s VAT as a tariff-like measure.
VAT is a consumption tax on all products, both domestic and foreign, and is not inherently protectionist. However, while EU exports are exempt from VAT, they are subject to generally lower destination-market taxes, especially in the US compared to Europe. Trump has also criticised EU agricultural subsidies and stringent health regulations, accusing the EU of exploiting the US for years.
In 2024, the US trade deficit with the EU reached a record $235.57 billion, surpassing the 2022 high of $218.06 billion. A strong dollar against the euro has enhanced the competitiveness of European products in US markets.
The proposed tariffs are largely seen as a negotiating strategy. Trump recently asserted that the US, as an open economy, has been exploited by numerous countries.
Trump had previously attempted to introduce reciprocal tariffs during his first term through a Republican-backed bill in Congress, which ultimately failed. The proposal offered two options: other countries lowering tariffs on US goods or the US raising its tariffs. Such a policy would challenge the World Trade Organisation (WTO) rules.
India, led by Prime Minister Narendra Modi, stands as one of the most exposed countries to these tariffs. Modi, who was visiting the White House on Thursday, has already reduced tariffs on select goods and expressed a willingness to increase US energy imports. Other countries with higher tariffs on US products include Vietnam, South Korea, Thailand, Taiwan and Brazil.
While reciprocal tariffs were a key campaign promise, Trump has postponed 25% tariffs on Mexico and Canada until 4 March and has only imposed a 10% tariff on Chinese imports, despite initially proposing 60%. Tariffs on imports under $800 were also suspended due to logistical challenges.
On Monday, Trump imposed 25% tariffs on aluminum and steel globally, with no exceptions, intensifying the trade war. Additional tariffs on industries such as oil, semiconductors, copper, and pharmaceuticals are anticipated.
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