As reported last night, Trump has officially signed an action on reciprocal tariffs, targeting all countries around the globe that have higher tariffs than the US. It appears that Trump has picked reciprocal in place of a inform tariff on all exports. That’s just the start however: what is more important is that as we cautioned earlier, the US also appears set to retaliate against Europe’s VAT buffer which could very well cripple the continent’s exporters. Trump ordered his secretary of commerce Howard Lutnick to prepare the tariffs for implementation by April 1.
This is what Trump published on his Truth Social account:
On Trade, I have decided, for purposes of Fairness, that I will charge a RECIPROCAL Tariff meaning, whatever Countries charge the United States of America, we will charge them – No more, no less!
For purposes of this United States Policy, we will consider Countries that use the VAT System, which is far more punitive than a Tariff, to be similar to that of a Tariff. Sending merchandise, product, or anything by any other name through another Country, for purposes of unfairly harming America, will not be accepted. In addition, we will make provision for subsidies provided by Countries in order to take Economic advantage of the United States. Likewise, provisions will be made for Nonmonetary Tariffs and Trade Barriers that some Countries charge in order to keep our product out of their domain or, if they do not even let U.S. businesses operate. We are able to accurately determine the cost of these Nonmonetary Trade Barriers. It is fair to all, no other Country can complain and, in some cases, if a Country feels that the United States would be getting too high a Tariff, all they have to do is reduce or terminate their Tariff against us. There are no Tariffs if you manufacture or build your product in the United States.
For many years, the U.S. has been treated unfairly by other Countries, both friend and foe. This System will immediately bring Fairness and Prosperity back into the previously complex and unfair System of Trade. America has helped many Countries throughout the years, at great financial cost. It is now time that these Countries remember this, and treat us fairly – A LEVEL PLAYING FIELD FOR AMERICAN WORKERS. I have instructed my Secretary of State, Secretary of Commerce, Secretary of the Treasury, and United States Trade Representative (USTR) to do all work necessary to deliver RECIPROCITY to our System of Trade!
Here are the details, as BBG notes, the president signed a measure directing the US Trade Representative and Commerce secretary to propose new levies on a country-by-country basis in an effort to rebalance trade relations, a sweeping process that could take weeks or months to complete, leaving doubt as to when the tarifffs would take effect.
“I’ve decided, for purposes of fairness, that I will charge a reciprocal tariff, meaning whatever countries charge the United States of America,” Trump said in the Oval Office with Howard Lutnick standing by his side. “In almost all cases, they’re charging us vastly more than we charge them but those days are over.”
President @realDonaldTrump announces RECIPROCAL TARRIFFS! 🇺🇸 pic.twitter.com/3gdw11RkC6
— Margo Martin (@MargoMartin47) February 13, 2025
Fresh import taxes would be customized for each country, and will be meant to offset not just their own tariffs on US goods but also non-tariff barriers the nations impose in the form of unfair subsidies, regulations, value-added taxes, exchange rates and other factors that act to limit US trade, said an official, who briefed reporters before the announcement.
The VAT response is notable because as we noted last night, the tariff differential for the EU, for example, with and without VAT is massive and rises from just 2% (without VAT) to a whopping 18% with! And judging by Trump’s comments, which said that the EU is “absolutely brutal” on trade, the inclusion of VAT is precisely meant to punish Europe.
As we discussed in greater depth last night, the chart below shows the amount that each country’s VAT exceeds the US sales tax. And so, if indeed Trump imposes a reciprocal tariff policy also accounted for foreign VATs, it could add another 10% to the average US effective tariff rate.
Needless to say, that could be catastrophic to exporters, and Deutsche Bank’s George Saravelos agrees writing that if reciprocal tariffs are applied on a VAT basis, “European countries would be much higher on the list of impacted countries given high consumption taxes.” Like Goldman, the DB strategist notes that the overall US tariff rate would increase by more than 10% (figures below).
Reciprocal tariffs amount to Trump’s broadest action to address US trade deficits and what he characterizes as unfair treatment of American exports around the globe. Trump has already imposed 10% tariffs on Chinese goods and plans to slap 25% duties on all US steel and aluminum imports next month.
There’s more: Trump told reporters that he would enact import taxes on cars, semiconductors and pharmaceuticals in addition to the reciprocal tariffs.
The text of Trump’s directive on tariffs was not immediately provided by the White House. Trump cited barriers in the EU, including a VAT, as an example of what the US is looking to respond to, while the official said Trump has also singled out Japan and South Korea as nations that he believes are taking advantage of the US, and thus could be targeted in his latest push.
The president said that he is hoping to have a discussion with other nations about how existing policies have created an imbalanced trade environment, the official said. And he’s more than happy to lower tariffs if countries want to pare their levies or remove other trade barriers, the official added.
Reciprocal tariffs are expected to hit hard in less-developed economies where average duties on US products are higher, according to Bloomberg Economics. It differs from a universal levy on all imports, as Trump proposed during the 2024 presidential campaign. The official said Trump could divert back to a global tariff strategy later on.
Trump announced his move just hours before he was set to host Indian Prime Minister Narendra Modi, whose country stands to be affected by reciprocal tariffs more than many other major trading partners. Trump has repeatedly criticized India’s its high tariff barriers.
According to Bloomberg, “Trump’s brinkmanship has injected uncertainty into the global economy, with businesses and consumers waiting to see how Trump proceeds on decision that could disrupt the US’s trade relationships with the rest of the world.” According to others, Trump is merely responding to a world where all countries have higher tariffs than the US!
Tyler Durden
Thu, 02/13/2025 – 14:16
