Modi applauds the US-India ‘mega partnership’ during his meeting with Trump
President Donald Trump is intensifying his strategy to impose tariffs on imports from countries he believes have unfair trade policies against the United States. On Thursday, Trump signed a memo directing staff to create specific tariffs for each country, taking into account factors like existing tariffs, exchange rates, trade balances, and other regulations. The White House emphasized that while foreign tariffs aren’t the main concern, policies from the European Union were singled out as putting U.S. exporters at a disadvantage.
Trump’s announcement is expected to trigger global trade discussions, though many details remain unclear.
Which countries could be affected?
The signed memo mandates staff to report back within 180 days with a plan for “reciprocal trade and tariffs.” Trump’s nominee for Commerce Secretary, Howard Lutnick, mentioned that a proposal will be ready by April 1. The idea behind these “reciprocal tariffs” is to encourage investment in the U.S. and boost local manufacturing. Trump argued that U.S.-made products would face no tariffs, calling the new approach fair and long overdue.
The European Union, along with countries like India, Vietnam, and Thailand—who rely heavily on the U.S. for exports and have higher tariffs—are expected to be impacted. Trump signed the memo ahead of a meeting with Indian Prime Minister Narendra Modi, who has already made moves to reduce tariffs on items like motorcycles, a key issue for Trump during his first term. Despite this, Trump reiterated his stance on reciprocal tariffs for India: “Whatever India charges us, we charge them.”
In the past few days, Thailand and Vietnam have also indicated they are reviewing their trade relations with the U.S. The European Union, on the other hand, affirmed its commitment to maintaining a close relationship with the U.S., while also standing ready to protect its interests.
What are reciprocal tariffs?
Tariffs are taxes imposed on imports, paid by the importing company. Countries typically impose them to protect certain industries from foreign competition. The U.S. has historically supported free trade, maintaining lower tariffs except for select products like footwear, steel, and aluminum. The U.S. has an average tariff rate of 3.4%, while Europe’s rate is higher at 5%, according to the WTO.
The White House pointed out discrepancies, such as the 10% tariff U.S.-made cars face in Europe versus the 2.5% tariff the U.S. places on foreign cars. Similarly, Brazil charges an 18% tariff on ethanol imports, while the U.S. only applies a 2.5% tariff.
Trump’s plans also aim to challenge other policies, including digital services taxes that several countries, including Canada and the UK, have introduced against Big Tech companies based in the U.S. European VAT policies are also a point of concern.
Potential impact on the economy
This announcement follows other recent tariff-related decisions by the Trump administration. Earlier, Trump ordered a 25% import tax on all steel and aluminum, ending exemptions for the European Union, the UK, and Brazil. This will take effect next month. Additionally, tariffs on Chinese goods were raised to 10%, and a 25% tariff on imports from Canada and Mexico is on hold until March.
Wall Street reacted positively as no immediate tariffs were announced. However, John Cassidy, CEO of Red Cedar Investment Management, said that while Trump’s tariff moves are uncertain, they have not significantly impacted the U.S. economy in the past. Still, economist Alex Durante from the Tax Foundation warned that tariffs could lead to more uncertainty and potentially spark a trade war.
Despite concerns over economic consequences, Trump dismissed worries about collateral damage. He stated that the tariffs would ultimately lead to job growth and manufacturing expansion in the U.S., though prices might rise temporarily before decreasing.
Polling data, however, shows that the U.S. public remains skeptical about the benefits of tariffs. A recent Marquette Law School poll found that only 24% of respondents believe tariffs will help the economy, with Republicans and Democrats showing low support for tariffs.
The main issue for critics is whether tariffs will cause higher inflation and increase the cost of goods, something Trump will need to address as his trade policy moves forward.