On February 13th, Trump confirmed the imposition of 'Reciprocal' Tariffs globally to ensure fair dealings with trading partners.

President Trump's 'Reciprocal Tariffs' plan will hit some industries and trading partners harder than others.

Entering international markets is challenging enough for businesses, but under the current U.S. administration, the task will become even more complex. Leading with President Trump's “reciprocal tariffs” policy, proposed changes to import tax regulations will have far-reaching impacts on certain industries and trade relationships. This shift in trade policy underscores the need for corporate executives to reassess risk as they navigate the increasingly complex world of global business.

In past trade negotiations, governments typically used their bargaining power to open foreign markets in a strategic and selective manner. Import taxes (or tariffs) have long varied from industry to industry and country to country, and countries have used these differences to negotiate agreements that benefit their competitive industries. Historically, these agreements have been considered fair because they are reciprocal and mutually beneficial-countries reach trade agreements based on their own economic interests, thereby balancing the playing field in different industries.

For example, the European Union imposes a 10 percent import tax on automobiles, while the United States imposes a much lower tariff of 2.5 percent on most cars. This difference is generally accepted in global trade because the U.S. typically benefits from tariff reductions on other products. This trade-off has been a cornerstone of international agreements, and different tariff rates are not seen as flaws, but rather as a natural part of the negotiating terms that favor all parties involved.

“Redefines the concept of fairness in international trade.”

However, President Trump's approach to trade fairness has dramatically altered this traditional paradigm. His administration's focus on “reciprocal tariffs”-where the U.S. would impose tariffs equal to those of other countries-fundamentally redefines the concept of fairness in international trade. In effect, Trump is proposing that all countries impose the same import tariffs on every good as the U.S., which could have serious consequences for companies in industries that rely on global trade.

The practical implications of this policy are complex. The U.S. would need to create and implement numerous tariffs for each product category based on the tariffs imposed by each of its trading partners. This would result in U.S. companies facing higher import costs, especially for products from countries with higher tariffs than the United States. Such changes could squeeze profit margins, force firms to raise prices, or prompt firms to seek alternative suppliers, potentially undermining established trade relationships.

In addition, a reciprocal tariff policy could become a bargaining tool in negotiations. Just as Trump previously delayed the implementation of 25 percent tariffs on Canada and Mexico in exchange for their promises to resolve border issues, reciprocal tariffs can be used as a lever to obtain favorable trade concessions from countries that are reluctant to adjust their tariffs.

In essence, while this new approach may seem fair on the surface, its long-term effects could create more volatility in international markets, leaving businesses to navigate a more unpredictable global trade environment.

“Excessive protectionist policies can have a contractionary effect on the economy.”

Following the introduction of the Smoot-Hawley Tariff Act in 1930, many trading partners retaliated by imposing tariffs on U.S. goods, which led to a significant decline in international trade.Between 1929 and 1934, global trade declined by approximately 65 percent, exacerbating the recession.

Although the Reciprocal Tariff Act is only half the level established by the Smoot-Hawley Tariff Act (which could reduce or increase U.S. tariffs to 50 percent of the level established by the Smoot-Hawley Tariff Act), historical evidence suggests that excessively protectionist policies can have a contractionary effect on the economy.

This has fueled skepticism that Trump has issued yet another threat that he won't carry out.But only China is currently affected by Trump's tariffs, with Chinese exporters now paying 10 percent more in import taxes than they did a month ago.

Table of tariff rates by country

Tariff increases are expected to materialize soon in the future after Trump proposed 'Reciprocal' Tariffs.