Empire strikes back: US to impose duties on the rest of the world
President Donald Trump has told his administration to consider imposing duties against numerous trading partners - in fact, most of the world's countries. Japan and South Korea, among others, could fall under the restrictions. Trump laments that counterparties charge America in various indirect ways more than it charges them, leading to unequal terms of trade and damage to American industry. The new tariffs could be implemented as early as April and will be customized for each individual state. Why the topic of tariffs has become so acute for the Trump administration and how the change in international trade policy threatens the world economy - in the material "Izvestia".
Fighting the deficit
A colossal annual deficit of the balance of payments has become the norm for the United States. In 2023, the foreign trade deficit amounted to $818 billion. In 2022, it was even greater - over $950 billion. The situation is only getting worse as time passes. Negative difference is formed in most sectors of the economy. If earlier it could be explained by huge purchases of hydrocarbons, now America itself has become a supplier of oil and gas to the world market. But this did not help: the deficit continued to grow in the 2010s and 2020s.
It wasn't always like this. After the end of World War II, the US was not just the world's largest economy, but the absolutely dominant force in all global trade. They accounted for more than 40% of global GDP (now about 20%). The US was the "world's factory" with a consistently positive trade balance. By the 1960s, as Europe, Japan and the USSR recovered from the war and growth in the developing world began, the balance became near zero. That began to change in the 1980s, when America began running chronic deficits with the rest of the world. Since then, Washington has tried to buy the problem - for example, when it demanded that China revalue the yuan in the 2000s. But these attempts had little success.
Now the U.S. has switched to tariff tactics, in a sense going back to the 19th century. Back then, duties were not so much an instrument of protectionism (although they were also an instrument of protectionism), but fulfilled fiscal purposes. Direct taxes were not honored by the population, and it was much more difficult to administer them. Nowadays, duties are used on a much smaller scale, especially after the onset of accelerated globalization in the 1980s and 1990s, which was an important cause of the U.S. trade deficit. The Trump-era U.S. is trying to use duties to address many international issues at once, including immigration and drug importation, as was the case with Canada and Mexico. Yet the main goal is to equalize the trade balance.
It is based on reciprocity
What do reciprocal tariffs represent? In 2023, Trump first announced the possibility of such a mechanism if he won the election. At that time, it was a question of applying mirror duties to any goods from any countries that, in turn, apply duties against the US. However, now the US administration intends to interpret this mechanism more broadly. The Department of Commerce and other bodies of the U.S. government plan to set tariffs for each country, taking into account all restrictions in addition to duties. For example, regarding the EU, the extensive use of digital tax as well as VAT is mentioned, which puts American goods at a disadvantage, according to the Trump administration.
The US believes that its country is one of the most open economies in the world. Competitors, on the other hand, use many ways to restrict American goods from entering their market. This is especially true for those countries and trading blocs that actively use various methods of state regulation of markets.
The imposition of such duties would violate WTO rules, which require the same tariffs to be applied to any counterparties, unless those countries are members of a trading bloc. In reality, few people are concerned about this now. The organization has been essentially dysfunctional since the second half of the 2010s, largely because of U.S. actions to block the appointment of judges. There are no serious ways for the WTO to influence a violator from this side. Especially when it comes to the U.S., which was once a crucial player in drafting the organization's rules.
"I have decided that in the interest of fairness, I will charge retaliatory tariffs, which means that countries will pay as much as they charge the United States of America," Trump said the other day. - "In almost all cases, they charge us far more than we charge them, but those days are over.
EU and Japan to prepare
The countries most at risk of harsh U.S. duties are the EU, India and Japan among others. Tariffs on the EU have already been talked about a lot, including directly by Trump. The president's trade adviser, Peter Navarro, singles out the European VAT as a way to triple the import tax on U.S. goods. And then there are the numerous standards for the European market, limiting the entry of goods from the U.S., where domestic regulation is relatively weak.
Japan, one of the world's largest exporters, does not protect its market with significant duties, but has numerous structural barriers. India, on the other hand, sets import tariffs that are exceptionally high by global standards (for example, for motorcycles it is 100% compared to just over 2% in the US). All three players have a significant trade turnover with the US and a large trade surplus with the world's largest economy.
Exactly how reciprocal duties will be imposed is not yet clear. They may be applied to specific goods, entire industries or even countries. In some cases, it is theoretically even possible that the US will reduce tariffs (if some country is found to have an even more lenient trade regime with America), but this is unlikely to happen often.
The changes in tariff policy are quite severe compared to the original pre-election plan. It involved imposing 20 percent duties on everything and everyone. Now there will be considerable work to differentiate and calculate a "fair" value for the duties.
All of this will go on top of the tariff measures Trump has taken so far. We're talking about 25 percent duties on all steel and aluminum imports, as well as 10 percent duties against all products from China. And there are also duties passed by the previous administration (against Chinese electric cars) and some tariffs left over from Trump's first term. In addition, the U.S. will impose separate import duties on automobiles, semiconductors and pharmaceuticals "over and above" the reciprocal tariffs at a later date.
Open to negotiations
Some countries are already starting to take measures against the new US trade policy, fearing to "get hit" and lose a crucial market. In India, for example, duties on motorcycles will be reduced. Prime Minister Narendra Modi has already paid an official visit to America, but it is still unclear what exceptions he was able to bargain for. The EU, for its part, is going to offer tariff relief to the US and provide increased purchases of some American goods, such as liquefied natural gas.
Left to right: Indian Prime Minister Narendra Modi shakes hands with U.S. President Donald Trump
While Trump himself says he has no intention of backing down on most of the duties, seeing them as an important part of his strategy to revitalize the U.S. economy and bring jobs back home, openly proclaiming a new policy could prove to be an invitation for discussion and bargaining. Washington does not need strict equality in trade from all counterparties: some may expect special treatment for certain economic policies. Others may enjoy friendly relations with the current U.S. administration, such as Italy or Hungary. For most other countries, the American measures may become quite painful, as it will be difficult for anyone to replace the huge size of the U.S. market.
This situation does not concern Russia much at the moment. Trade ties with America have declined sharply in recent years, and turnover has fallen by leaps and bounds. Nevertheless, if the Ukrainian crisis is resolved and sanctions are lifted, the issue may become relevant again: US-Russian trade relations were developing quite briskly until 2022. It is likely that the issue of duties may be included in the broader agenda of negotiations between Russia and the United States, if such negotiations are launched.
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