reciprocal tariffs

Trump’s Unilateral Trade Toolkit

Trump’s Unilateral Trade Toolkit

Finally, the system brought welcome stability, more certainty and lower risk. The GATT/WTO process captured the highest level of tariff on each product that could be charged. Many members applied a lower tariff rate at the border, but firms can be confident that tariffs will not rise above the rates locked in or “bound” at the GATT/WTO. Trump’s plan would upend all of this. Firms could be faced with a shifting and complex set of potential tariffs with no certainty on the top level of tariffs that might be charged at any time. To see how this matters it can be easiest to just view imports first. The table manufacturer can now make tables knowing that the wood for legs will face a consistent tariff no matter where they are sourced. The screws can be imported from anywhere, with the same tariffs in place. But if Trump gets his matching tariff scheme, the table company would need to know exactly where the legs are coming from, as the tariff on wood could vary widely from WTO member to WTO member. Screws from one country might arrive without any tariffs at all, while the supplier the table firm has traditionally used would need to pay 10% tariffs. But the basic point is that the GATT/WTO system brought welcome stability and consistency to most trade. Trump’s proposed action would upend this system. Firms would suddenly have to grapple with inconsistent and discriminatory tariffs. The complexity of managing trade and the costs associated with ensuring compliance would skyrocket. Smaller firms, especially, would be at a serious disadvantage.