President Trump released his “Fair and Reciprocal Trade” memo on Thursday, calling into question whether these new proposed tariffs will be permanent like the China Section 301s or quickly removed once a country “reciprocates” in kind.
“I think the tariffs will remain,” Trump said in a press conference. He noted that as soon as Europe got wind of the possibility of reciprocal tariffs, it lowered their tariffs on U.S. cars, which was 10%. But Trump said he didn’t expect any exemptions or waivers on tariffs this time and he singled out numerous sectors he thinks he can entice to invest in manufacturing at home if tariffs are long-term.
“I think it’ll bring pharmaceuticals back to our country. I think we will bring in more automobile manufacturing,” he said, adding semiconductors to the list.
The memo is part of a three-pronged tariff strategy that includes these tariffs to balance trade with nations that have large surpluses with the U.S. and tariffs-as-leverage to exact concessions from countries to take actions on national security matters, like the tariff threats against Mexico, Canada and Colombia regarding the border and fentanyl. This memo does not mention the revenue tariff strategy, which should be long term if the government wants to calculate how much revenue it can collect instead of taxation. The Trump team, including Treasury Secretary Scott Bessent, said a revenue tariff could be used to extend the Tax Cuts & Jobs Act, expiring next year.
However, it is unclear if this reciprocal tariff approach could see tariffs come and go as quickly as the tariff threats on Colombia.
Additionally, if countries were to lower tariffs on certain goods to mirror U.S. tariffs – which average around 3.4% — this could be as attractive to importers as it is for exporters. That raises concerns about whether reciprocal tariffs will balance trade, particularly with countries where the goods trade deficit is growing.
The memo gives the Commerce Department until April 1 to determine how this will be implemented.
Bessent told Maria Bartiromo on Fox Business News on Friday that the April 1 tariffs depend on how countries respond in the meantime. The EU’s tariff reduction on automobiles is a case in point.
Can equal tariff rates balance trade? If the U.S. lowers tariffs on goods in response to another country doing the same, it could reduce incentives for long-term domestic manufacturing investments, barring other policy measures such as taxes, producer incentives and regulatory changes.
The White House blames high tariffs from other countries and low tariffs here as the reason for our goods deficit.
“This lack of reciprocity is one source of America’s large and persistent annual trade deficit in goods: closed markets abroad reduce U.S. exports and open markets at home result in significant imports, both of which undercut American competitiveness,” the White House memo said. It further noted that the United States has run a trade deficit of goods every year since 1975, but said the trade deficit exceeded $1 trillion in 2024. That’s a surprising understatement. The U.S. has run a trillion dollar-plus trade deficit since 2021, reaching a record $1.22 trillion deficit in 2024.
“By making trade more reciprocal and balanced, we can reduce the trade deficit; grow the United States economy; and improve our trade relationships with trading partners to the benefit of American workers, manufacturers, farmers, ranchers, and entrepreneurs,” the memo said.
The memo also referenced the roughly $40 billion deficit in the agriculture trade, an issue CPA highlighted recently.
Much of this deficit is tied to existing trade reciprocity via free trade agreements (FTA). For Trump, however, even those FTAs contain non-tariff barriers and other policies that make U.S. imports less attractive. It is unlikely these will be removed in any broad, meaningful way, such as Europe’s phytosanitary measures on U.S. food exports.
The White House ordered its USTR, Commerce, Treasury and Homeland, which runs Customs and Border Protection, to investigate non-tariff barriers, including:
Extraterritorial taxes included the value-added-tax (VAT) imposed by European countries on U.S. imports
Estimate costs of non-tariff barriers, state subsidies, and regulatory requirements on United States businesses operating in foreign countries
Examine the monetary policies and practices that cause exchange rates to deviate from their market value versus the dollar, leading to mercantilist policies that make United States businesses and workers less competitive abroad
Examine any other government-imposed limitation on market access for U.S. companies.
The “Fair and Reciprocal Trade” memo instructs the Office of Management and Budget to “assess all fiscal impacts” and report to the White House by mid-August.
“Most European nations have VAT rates of around 20%, which is levied on imports into Europe but not exports from Europe to the U.S.,” said CPA Chief Economist Emeritus Jeff Ferry. “A 20% tariff on, for example, European auto exports to the U.S. would be a powerful stimulus to the U.S. auto industry. And while European nations can cut their tariffs, they can’t cut their VAT rates because VAT provides about a third of government revenue over there. So we could evolve to a situation with mutual tariffs or VATs of about 20% and on both sides of the Atlantic; these revenues would be an important part of U.S. government income.”
Trump Confident in Tariffs, But Will They Stay?
At the press conference, Trump was confident in his tariff strategy.
His memo was released just 48 hours after reimposing Section 232 steel and aluminum tariffs, erasing duty free entry for Mexico and Canada and upending the quota system granted to Japan and the European Union, to name a few. (CPA supported this Executive Order.)
The global Section 232 tariffs take effect March 12. These tariffs are for at least four years and are seldom rescinded. Ex-President Biden also extended for four years the Section 301 tariffs on China. It is unclear if there will be exclusions here as Trump’s comment on exclusions and exemptions was not in response to questions about steel and aluminum tariffs, but were about the reciprocal tariffs memo more broadly.
Trump was asked by a reporter what the CEOs of U.S. steel companies were saying about the tariffs and he said, “They are in love with it. US Steel (stock price) is through the roof. I think they are going to do great now. These global steel tariffs give them a new lease on life.”
Another reporter asked how much revenue the tariffs might generate.
“Good question,” he responded. “I think it is going to be a staggering amount. This could be one of the most important things we do.”
When asked if Wall Street was worried, Trump said “maybe”, but he doubted they would be worried for long.
These changes in costs to publicly traded companies will require financial analysts to rethink profit and growth and nobody likes to have to redo their homework.
“I think it’s going to make America strong,” Trump said, adding that the Executive Branch has no plans to conduct a separate inflation study on tariffs.
He might not need to.
On Feb. 6, the Federal Reserve Bank of Boston did some of that homework already. They looked into 25% tariffs on Mexico and Canada and 60% tariffs on China.
They estimate that an additional 25% tariff on goods from Canada and Mexico combined with an additional 10% tariff on goods from China could add 0.8 percentage point to core inflation. A 60% tariff on China and an additional 10% revenue tariff on the world could contribute as much as an additional 2.2 percentage points to core inflation. Their estimates represent a first-round effect on prices, or a one-off effect. They do not take into account how consumers respond and how competitors and the market adjust prices.
CPA economist Andrew Rechenberg noted on Feb. 12 that the Federal Reserve of Boston’s inflation estimates are total cumulative inflation increases, not annual inflation increases. These cumulative inflation increases usually spread out over multiple years, making the impact on annual inflation even more indistinguishable. Over a 6-year tariff adjustment period, these inflation impacts would fall to a 0.13% and 0.37% maximum annual inflation increase respectively.
The Federal Reserve inflation estimates track closely to the December 2024 Congressional Budget Office (CBO) tariff analysis. The CBO also examined the impact of an additional 60% tariff on China and 10% on the rest of the world. CBO’s forecast was even more optimistic about the minute impact of tariffs on prices. According to their preliminary findings, the 60/10 tariff package would lead to only a one-time 1% increase in prices. Further, CBO said that “after 2026, the tariffs would not have additional significant effects on prices.”
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
Trump’s Reciprocal Tariffs Memo: Uncertainties and Key Questions
President Trump released his “Fair and Reciprocal Trade” memo on Thursday, calling into question whether these new proposed tariffs will be permanent like the China Section 301s or quickly removed once a country “reciprocates” in kind.
“I think the tariffs will remain,” Trump said in a press conference. He noted that as soon as Europe got wind of the possibility of reciprocal tariffs, it lowered their tariffs on U.S. cars, which was 10%. But Trump said he didn’t expect any exemptions or waivers on tariffs this time and he singled out numerous sectors he thinks he can entice to invest in manufacturing at home if tariffs are long-term.
“I think it’ll bring pharmaceuticals back to our country. I think we will bring in more automobile manufacturing,” he said, adding semiconductors to the list.
The memo is part of a three-pronged tariff strategy that includes these tariffs to balance trade with nations that have large surpluses with the U.S. and tariffs-as-leverage to exact concessions from countries to take actions on national security matters, like the tariff threats against Mexico, Canada and Colombia regarding the border and fentanyl. This memo does not mention the revenue tariff strategy, which should be long term if the government wants to calculate how much revenue it can collect instead of taxation. The Trump team, including Treasury Secretary Scott Bessent, said a revenue tariff could be used to extend the Tax Cuts & Jobs Act, expiring next year.
However, it is unclear if this reciprocal tariff approach could see tariffs come and go as quickly as the tariff threats on Colombia.
Additionally, if countries were to lower tariffs on certain goods to mirror U.S. tariffs – which average around 3.4% — this could be as attractive to importers as it is for exporters. That raises concerns about whether reciprocal tariffs will balance trade, particularly with countries where the goods trade deficit is growing.
The memo gives the Commerce Department until April 1 to determine how this will be implemented.
Bessent told Maria Bartiromo on Fox Business News on Friday that the April 1 tariffs depend on how countries respond in the meantime. The EU’s tariff reduction on automobiles is a case in point.
Global 10% Tariffs on U.S. Imports Would Raise Incomes and Pay for Large Income Tax Cuts for Lower/Middle Class
Read More »Can Reciprocity ‘Balance’ Trade?
Can equal tariff rates balance trade? If the U.S. lowers tariffs on goods in response to another country doing the same, it could reduce incentives for long-term domestic manufacturing investments, barring other policy measures such as taxes, producer incentives and regulatory changes.
The White House blames high tariffs from other countries and low tariffs here as the reason for our goods deficit.
“This lack of reciprocity is one source of America’s large and persistent annual trade deficit in goods: closed markets abroad reduce U.S. exports and open markets at home result in significant imports, both of which undercut American competitiveness,” the White House memo said. It further noted that the United States has run a trade deficit of goods every year since 1975, but said the trade deficit exceeded $1 trillion in 2024. That’s a surprising understatement. The U.S. has run a trillion dollar-plus trade deficit since 2021, reaching a record $1.22 trillion deficit in 2024.
“By making trade more reciprocal and balanced, we can reduce the trade deficit; grow the United States economy; and improve our trade relationships with trading partners to the benefit of American workers, manufacturers, farmers, ranchers, and entrepreneurs,” the memo said.
The memo also referenced the roughly $40 billion deficit in the agriculture trade, an issue CPA highlighted recently.
Much of this deficit is tied to existing trade reciprocity via free trade agreements (FTA). For Trump, however, even those FTAs contain non-tariff barriers and other policies that make U.S. imports less attractive. It is unlikely these will be removed in any broad, meaningful way, such as Europe’s phytosanitary measures on U.S. food exports.
New CPA Economic Report Finds U.S. Faces Record Agricultural Imports, Worst Trade Deficit in History
Read More »Beyond Tariffs: Examining Trade Barriers
The White House ordered its USTR, Commerce, Treasury and Homeland, which runs Customs and Border Protection, to investigate non-tariff barriers, including:
The “Fair and Reciprocal Trade” memo instructs the Office of Management and Budget to “assess all fiscal impacts” and report to the White House by mid-August.
“Most European nations have VAT rates of around 20%, which is levied on imports into Europe but not exports from Europe to the U.S.,” said CPA Chief Economist Emeritus Jeff Ferry. “A 20% tariff on, for example, European auto exports to the U.S. would be a powerful stimulus to the U.S. auto industry. And while European nations can cut their tariffs, they can’t cut their VAT rates because VAT provides about a third of government revenue over there. So we could evolve to a situation with mutual tariffs or VATs of about 20% and on both sides of the Atlantic; these revenues would be an important part of U.S. government income.”
Trump Confident in Tariffs, But Will They Stay?
At the press conference, Trump was confident in his tariff strategy.
His memo was released just 48 hours after reimposing Section 232 steel and aluminum tariffs, erasing duty free entry for Mexico and Canada and upending the quota system granted to Japan and the European Union, to name a few. (CPA supported this Executive Order.)
Trump was asked by a reporter what the CEOs of U.S. steel companies were saying about the tariffs and he said, “They are in love with it. US Steel (stock price) is through the roof. I think they are going to do great now. These global steel tariffs give them a new lease on life.”
Another reporter asked how much revenue the tariffs might generate.
“Good question,” he responded. “I think it is going to be a staggering amount. This could be one of the most important things we do.”
When asked if Wall Street was worried, Trump said “maybe”, but he doubted they would be worried for long.
These changes in costs to publicly traded companies will require financial analysts to rethink profit and growth and nobody likes to have to redo their homework.
“I think it’s going to make America strong,” Trump said, adding that the Executive Branch has no plans to conduct a separate inflation study on tariffs.
He might not need to.
On Feb. 6, the Federal Reserve Bank of Boston did some of that homework already. They looked into 25% tariffs on Mexico and Canada and 60% tariffs on China.
They estimate that an additional 25% tariff on goods from Canada and Mexico combined with an additional 10% tariff on goods from China could add 0.8 percentage point to core inflation. A 60% tariff on China and an additional 10% revenue tariff on the world could contribute as much as an additional 2.2 percentage points to core inflation. Their estimates represent a first-round effect on prices, or a one-off effect. They do not take into account how consumers respond and how competitors and the market adjust prices.
CPA economist Andrew Rechenberg noted on Feb. 12 that the Federal Reserve of Boston’s inflation estimates are total cumulative inflation increases, not annual inflation increases. These cumulative inflation increases usually spread out over multiple years, making the impact on annual inflation even more indistinguishable. Over a 6-year tariff adjustment period, these inflation impacts would fall to a 0.13% and 0.37% maximum annual inflation increase respectively.
The Federal Reserve inflation estimates track closely to the December 2024 Congressional Budget Office (CBO) tariff analysis. The CBO also examined the impact of an additional 60% tariff on China and 10% on the rest of the world. CBO’s forecast was even more optimistic about the minute impact of tariffs on prices. According to their preliminary findings, the 60/10 tariff package would lead to only a one-time 1% increase in prices. Further, CBO said that “after 2026, the tariffs would not have additional significant effects on prices.”
MADE IN AMERICA.
CPA is the leading national, bipartisan organization exclusively representing domestic producers and workers across many industries and sectors of the U.S. economy.
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