What to make of the upcoming US 'reciprocal tariffs'

The world is anxious as US President Donald Trump is set to roll out "reciprocal tariffs" on what he called "Liberation Day" this Wednesday, targeting any country that has imposed levies on US goods.

The initiative aims to match the tariffs levied by other countries on American goods by imposing equivalent rates on their exports to the United States. However, this approach has drawn widespread criticism for its potential to undermine the established multilateral trade system that has contributed significantly to global prosperity.

Now the system would give way to arbitrary judgments made in the Oval Office. Critics argue that the levies will boost inflation in the near term and weigh on growth, triggering a trade war that could inflict serious damage on the United States and the wider global economy.

What's behind 'reciprocal tariffs?'

"The lack of reciprocity contributes to our large and persistent annual trade deficit that's gutted our industries and hollowed out key workforces," White House press secretary Karoline Leavitt said Tuesday. "But those days of America, beginning tomorrow, being ripped off are over."

Leavitt also confirmed that an additional 25 percent tariff on auto imports, announced by Trump last week, will take effect as planned on Thursday.

The press secretary accused "too many foreign countries" of unfairly closing their markets to US exports and said "reciprocal tariffs" on countries that impose duties on US goods would take effect immediately.

Yet how these levies will actually be implemented is still up in the air. Leavitt did not provide any details about what Trump would announce. She has suggested, as Trump has said repeatedly, that the president could announce those tariffs matching other countries' dollar for dollar.

Why are they detrimental?

"Reciprocal tariffs" threaten to dismantle a trade framework that the United States itself helped establish, said Tu Xinquan, dean of the China Institute for WTO Studies at the University of International Business and Economics.

Since the enactment of the 1934 Reciprocal Trade Agreements Act, the United States has been a staunch advocate of multilateral trade agreements based on the most-favored-nation principle, whereby any favorable trade terms extended to one country are automatically applied to all others with which the United States has similar agreements.

The new approach, however, abandons this principle in favor of a system where tariffs are recalibrated unilaterally to match those of trading partners. In doing so, the policy undermines the very framework that has governed international trade for decades, injecting chaos and uncertainty into a system built on predictability and mutual concessions, experts have said.

Under current WTO guidelines, tariff structures are designed to reflect the developmental stages of different nations.

Developing countries often enjoy higher tariff rates on imports as a protective measure for their budding industries, while developed countries benefit from lower tariffs that facilitate open trade, said Liu Feitao, vice president of the China Institute of International Studies.

By insisting on equal tariffs, the United States would effectively strip developing nations of their ability to nurture their domestic industries. This could exacerbate global inequality as poorer countries lose critical policy tools to support their economic growth, further widening the gap between rich and poor nations, said Liu.

US imports surged 6.6 percent to a record 4.1 trillion dollars in 2024, encompassing a wide range of goods and services, data from the US Commerce Department showed. The administrative effort needed to implement reciprocal tariffs would range from gruelling to gargantuan, depending on how reciprocity was defined, according to The Economist magazine.

Beyond these systemic issues, there are clear and immediate consequences for American consumers and the domestic economy. Economic forecasts by Yale University suggest that even in the absence of retaliatory measures from trading partners, US consumer prices could rise 1.7 percent in the short term.

Should other nations respond with their own tariffs, price increases could be 2.1 percent, potentially dampening personal consumption expenditure and slowing overall economic growth.

Wide backlash

The international reaction to the proposal has been overwhelmingly negative. Analysts have condemned the move as a return to unilateralism and protectionism – tactics reminiscent of a bygone era of power politics.

Prominent international figures warn that unilateral tariff adjustments will not only strain diplomatic ties but also trigger a cascade of retaliatory measures, potentially igniting a full-blown trade war.

European Commission President Ursula von der Leyen said Tuesday that "all instruments are on the table" to hit back if necessary, although the bloc still hopes for a "negotiated solution."

British Prime Minister Keir Starmer suggested his country was "working hard on an economic deal" but admitted "the likelihood is there will be tariffs."

"Nobody wants a trade war, but I have to act in the national interest. That means all options have to remain on the table," he said.