Trump Increases Tariffs to Match Other Countries

By David Lawder

WASHINGTON (Reuters) – President Donald Trump on Thursday moved to tear up decades-old low U.S. tariff rates, raising them to match those of other countries and counteract other barriers to American goods to try to shrink a U.S. goods trade deficit that topped $1.2 trillion last year.

The effort could lead to higher tariffs for major trading partners by early April and spark negotiations with dozens of countries aimed at lowering their tariffs and trade barriers.

Key Elements of Trump’s Memorandum on “Reciprocal Trade and Tariffs”

Tariff Matching

Trump ordered the Commerce Department and the U.S. Trade Representative’s office, in consultation with the Treasury and the Department of Homeland Security, to recalculate U.S. tariff rates for each country, product by product.

This massive undertaking aims to examine more than 17,000 import tariff product codes, potentially for each of the 186 countries that currently enjoy Most-Favored Nation trading status with the U.S.

For example, Brazil charges an 18% tariff on U.S. ethanol, while the U.S. allows Brazilian ethanol largely duty-free, according to the American Biofuels Association. Under Trump’s plans, the U.S. rate could be raised to match Brazil’s or the Brazilian rate could be lowered to the U.S. level.

The European Union collects a 10% tariff on vehicle imports, four times the U.S. passenger car tariff rate of 2.5%, although the U.S. tariff on highly profitable pickup trucks is 25%.

A White House official said that countries with large U.S. trade surpluses or especially “egregious” cases could be targeted first. China, Mexico, Vietnam, Ireland, and Germany had the five largest goods trade surpluses with the U.S., according to the U.S. Census Bureau.

India’s tariff rates are the highest among the top 15 U.S. trading partners, according to the World Trade Organization, with a simple average 17% rate for all products compared to 3.3% for the U.S.

Non-Tariff Barrier Calculations

Trump’s order also calls for agencies to calculate the cost of non-tariff barriers such as regulations that shut out U.S. goods; taxes deemed “unfair,” like the European Union’s Value Added Tax; and the actions of state-owned firms in China that benefit from subsidies from Beijing.

These costs will also factor into the new, higher tariff rates, and a White House official noted these barriers are more significant than standard tariffs.

The memo defines a non-tariff barrier as “any government-imposed measure or policy or non-monetary barrier that restricts, prevents, or impedes international trade in goods, including import policies, sanitary and phytosanitary measures, technical barriers to trade, government procurement, export subsidies, lack of intellectual property protection, digital trade barriers, and government-tolerated anticompetitive conduct of state-owned or private firms.”

The White House official also stated that foreign exchange rates would also be considered in tariff calculations, as undervalued currencies against the dollar contribute to the U.S. trade deficit by making U.S. exports more expensive.

Tariff Timeline

Commerce secretary nominee Howard Lutnick said Trump will be ready to impose the new tariffs by April 1, when the Commerce Department, USTR, and the U.S. Treasury submit a series of reports on revamping U.S. trade policies to Trump.

Trump’s order calls on the Office of Management and Budget to report within 180 days on the fiscal impacts of the tariff actions on the federal government’s finances.

The White House official also indicated that Trump would not have to wait for that report to start imposing tariffs, which could take weeks, not months, since the administration will examine tariffs on a country-specific basis and existing data will expedite the process.