Tariff reciprocity dilemma

• The Trump administration is implementing a ‘Fair and Reciprocal Plan’ to counter non-reciprocal trading arrangements with trading partners.
• The plan assesses non-reciprocal trading relationships based on tariffs, discriminatory taxes, nontariff barriers, exchange rate manipulations, and other practices that limit U.S. market access or impede American firms from competing.
• In 2010, 12% of global merchandise exports were sent to the U.S., which has increased to 13.4% in 2022.
• The U.S. accounts for over 75% of Canadian and Mexican merchandise exports, while 81 out of 160 countries exported less than 5% of their total goods to the U.S.
• The average U.S. share across the 160 countries is 11.4%, with the median being 4.7%.
• The Trump administration’s tariffs on partner exports are lower than those on U.S. exports, excluding Canada, the EU, Japan, and the U.K.
• The Trump administration perceives a tariff disadvantage in 130 countries, with the magnitude of the tariff increase needed to nullify the disadvantage being less than 5% in 57 countries.
• The threat of reciprocal tariffs may be more credible in the remaining 73 countries worldwide, where U.S. bilateral tariffs need to be raised by more than 5%.
• The magnitude of tariff hikes in these cases is positively correlated with the U.S. export shares in the partner countries.
• The best policy response to reciprocal tariffs is for impacted countries to remove barriers to doing business, both internally and with their non-U.S. trading partners.
• The World Bank and World Trade Organization reports show that exports of digitally delivered services have grown faster than all other services and goods during the last decade.
• Policymakers should focus on issues that matter, not retaliatory tariffs.