A Positive Vision for Reciprocal Trade

Trump’s Push for Reciprocal Trade

President Donald Trump recently issued a memorandum outlining a plan for “reciprocal trade and tariffs,” in which U.S. trade agencies and officials would assess the tariffs and trade barriers of other countries and adjust U.S. tariffs to match what the memo presumes to be the higher tariffs and barriers of those countries. Specifically, the idea is to “counter non-reciprocal trading arrangements with trading partners by determining the equivalent of a reciprocal tariff with respect to each foreign trading partner.”

This reciprocity, according to Trump, would lead to a fairer trading system. As he put it in the memo: “The United States imposes fewer barriers to imports than other major world economies, including those with similar political and economic systems. For many years, the United States has been treated unfairly by trading partners, both friend and foe.” And as he described the idea of reciprocity in relation to tariffs, “they charge us, we charge them,” adding “I think that’s the only fair way to do it.”

On its face, reciprocity sounds fair. If a foreign government charges a 5% tariff on U.S. exports, it seems fair that the U.S. also charges a 5% tariff on imports from that country. Equal is generally seen as fair, and 5% is equal to 5%.

However, as explained in this commentary, the situation is more complicated than it may appear, for several reasons. Tariffs are taxes that can hurt the economy of the country imposing them and therefore raising domestic tariffs to match the higher ones imposed by foreign governments can be counterproductive. In addition, the current balance of tariffs among countries is not exactly as Trump portrays.

On nontariff barriers, the U.S. has plenty of these as well, so the situation is likely more balanced than Trump thinks. Furthermore, judgments about whether particular foreign government regulatory actions are “fair” cannot be made unilaterally and redressed through tariffs.

While there are real issues and concerns with foreign tariffs and trade barriers, the solution lies not in unilateral U.S. tariff increases, but rather in trade agreements that lower tariffs all around and establish rules of the road for nontariff barriers that limit regulatory protectionism.

The Challenges of Reciprocal Tariffs

While there are theoretical arguments about how tariffs can improve the domestic economy overall — as opposed to enriching certain companies that benefit from protectionism — in practice, it is difficult to achieve these outcomes. In fact, economists sometimes analogize tariffs to “shooting yourself in the foot.” Taxing imports limits competition, which leads to a market that is less efficient and innovative. It also raises the prices of products, both for consumers and for intermediate goods that are used for domestic production. As a result, matching other governments’ tariffs might sound “fair” in some sense, but if it makes the U.S. worse off economically, that superficial fairness offers little consolation.

In addition, the tariffs imposed by many U.S. trading partners are often not significantly higher than those of the U.S., so the extent of any unequal tariffs is less than Trump suggests. A White House fact sheet issued along with the reciprocal trade and tariffs memo selectively highlights a few products to create the impression that the U.S. is suffering from a significant tariff imbalance, but the reality is that tariff levels are often comparable.

For example, Canada and Mexico are part of the United States-Mexico-Canada Agreement (USMCA) — successor to the North American Free Trade Agreement (NAFTA) — under which these three North American countries have eliminated virtually all tariffs on trade between each other. In addition, the tariffs of other major trading partners do not exceed U.S. tariffs by much. There are different ways to measure tariffs, but they all point in a similar direction. 

According to the World Trade Organization (WTO), the average tariff rates imposed by the EU and Japan as set out in their tariff schedules are 5.0% and 3.7% respectively, which is not much higher than the U.S. rate of 3.3%. And World Bank statistics on the average tariff applied by the EU and Japan on traded goods show 1.3% and 1.6% respectively, which is comparable to the U.S. rate of 1.5%.

Furthermore, the data used for national tariff comparisons tend to focus on standard tariffs set out in a government’s tariff schedule, but there are other types of tariffs not included here. One such type is anti-dumping tariffs, which are used to counter low-priced imports and can be imposed on specific products following an investigation by government authorities. For example, in 2024, the Biden administration imposed anti-dumping duties of 744.81% on Slovenian mattress imports. When factoring in tariffs of this type, U.S. tariffs do not appear so low.

At the same time, it is true that the tariffs applied by developing countries are sometimes fairly high, with “special and differential treatment” being a well-established principle of the trading system that allows such tariffs. It is worth noting, in this regard, that in recent decades, U.S. demands in trade negotiations have shifted away from pushing for lower tariffs and have instead focused on issues such as stronger intellectual property rules and labor rights protections.

If the tariff system is out of balance, with U.S. tariffs higher than those of certain trading partners, it is at least in part due to the U.S. emphasis on other issues. Thus, if the U.S. had wanted to press India, which is singled out in the Trump fact sheet for its 100% tariff on U.S. motorcycles, on lowering its tariffs rather than on ratcheting up its intellectual property protection, it could have done so. A shift back toward lowering foreign tariffs as the focus is possible, but it would likely mean giving up some of what the U.S. was able to achieve in these other areas.

Navigating Nontariff Barriers in Global Trade

Beyond tariffs, Trump’s memo sets out several specific categories of nontariff measures taken by foreign governments:

• Unfair, discriminatory, or extraterritorial taxes, including value-added taxes.
• Nontariff barriers or measures and unfair or harmful acts, policies, or practices, including subsidies and burdensome regulatory requirements.
• Nonmarket exchange rates, wage suppression, and “other mercantilist policies” that reduce the competitiveness of U.S. businesses and workers.

Most of these issues are already governed, to some extent, by existing international trade rules, and the U.S. was a driving force in creating these rules. For example, on both subsidies and regulatory requirements, the U.S. pushed for a comprehensive set of rules at the WTO and in free trade agreements (FTAs) that constrain what governments can do.

It may be that the Trump administration has concerns with the existing rules, and if that is the case it could propose revisions. All of the rules reflect a carefully calibrated balance that was believed to be the correct one at the time. For example, WTO rules say that product regulations “shall not be more trade-restrictive than necessary to fulfil a legitimate objective, taking account of the risks non-fulfilment would create.” If the Trump administration is not happy with that formulation, it can suggest an alternative. Or if it wants more detailed rules on currency manipulation, it can propose them at the WTO — as it did in the USMCA and the U.S.-China Phase One Agreement.

But if it plans to take unilateral action against what it perceives to be foreign protectionism through nontariff measures, that is unlikely to be effective. For many of these nontariff measures, governments adopting them believe they serve a non-protectionist purpose. As a result, a unilateral judgment by one government that the measures are illegitimate is unlikely to be well received.

Finally, it is worth noting that if this exercise is meant to compare U.S. and foreign nontariff measures to determine if there is reciprocity, the U.S., just like its trading partners, has extensive regulatory barriers, subsidies, and other protectionist measures. These include agriculture subsidies, state and local tax incentives, federal and state product regulations, semiconductor subsidies, Buy American procurement policies, and Jones Act shipping restrictions, among others. Quantifying all of the various measures on both sides and determining which country’s barriers are higher would be a challenging exercise.

Reciprocity Through Trade Agreements

At the core of Trump’s concern with reciprocity is the U.S. trade deficit, which is mentioned several times in the memo. At one point, it states: “By making trade more reciprocal and balanced, we can reduce the trade deficit.” But trade deficits are primarily driven by macroeconomic factors rather than tariffs and other trade restrictions, and using these deficits as a reason for pushing reciprocity is misguided.

Nonetheless, trade barriers do remain high, and in some cases foreign tariffs are, in fact, higher than U.S. tariffs. The appearance of nonreciprocal trade, through both tariffs and nontariff barriers, can be a political problem, and the existence of these tariffs and trade barriers is an economic problem. The answer to both problems can be found in negotiations to facilitate trade through formal agreements.

For tariffs, one way to resolve some of the conflict between the goal of tariff reciprocity, on the one hand, and the economic problems caused by tariffs, on the other hand, is to push for an international agreement that brings the tariffs of all countries close to zero, along the lines of the USMCA. Trump suggested this at one point during his first term, even expanding this idea to other trade barriers: “We should at least consider no tariffs, no barriers — scrapping all of it.”

The reality, however, is that such an outcome is unlikely under the second Trump administration. Despite his occasional references to pushing for “no tariffs,” Trump has emphasized again and again that he wants tariffs, declaring himself a “tariff man” and saying that tariff is the most beautiful word in the dictionary. That likely puts a zero tariff agreement off the table for the time being.

On nontariff barriers, there are a number of existing provisions in trade agreements to regulate these, but some of the rules are outdated and need upgrades and refinements. The WTO rules on subsidies were written in the early 1990s, and the digital trade rules that have proliferated in recent years have become fragmented as countries take diverging approaches. An effort to update and rationalize these provisions would provide all governments with a set of reciprocal, enforceable rules that establish when exactly nontariff measures are a problem.

Improving the Trading System from Within

Trump’s reciprocity memo appears to signal a unilateral move to raise U.S. tariffs in response to foreign tariffs and trade barriers. This approach is likely to cause serious problems for U.S. trade policy and for the trading system.

If the Trump administration were to attempt a unilaterally imposed “reciprocal” approach to trade and tariffs, it would come up against many administrative and methodological challenges. Calculating a U.S. tariff to be applied to each trading partner, taking into account both tariffs and other trade barriers in that country, will not be easy and the result is likely to look arbitrary. If the administration tries to match foreign tariffs and barriers on a product by product basis, it will be even more difficult.

In addition, the U.S. tariffs would lead to retaliation by trading partners, further damaging both the U.S. and global economies, and undermining U.S. influence in the process. It would functionally mean the U.S. is no longer participating in the world trading system it helped create, as it would be a flagrant violation of the rules of the WTO and all the FTAs it has signed. With most other countries continuing to uphold the system between each other, the U.S. risks losing influence by remaining on the sidelines. A more effective approach would be to engage and shape the rules from within.

When the dust settles on the current approach, the experience of the past may provide a way forward. After the Smoot-Hawley tariffs caused significant economic harm during the Great Depression, President Franklin D. Roosevelt implemented a U.S. trade policy centered on governments mutually agreeing to lower tariffs through trade agreements. This contributed to growth and prosperity in the U.S. and around the world in the ensuing decades. With recent alternative approaches to U.S. trade policy causing so many economic and political challenges, historical success stories may, at some point, receive a second look and a revival.

This publication was produced on behalf of Rice University’s Baker Institute for Public Policy. Wherever feasible, the material was reviewed by external experts prior to its release. Any errors are the responsibility of the author(s) alone. 

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