From Asia to Europe, allies to rivals: Why no country is spared from Trump’s reciprocal tariffs

Reciprocal tariffs: After weeks of suspense, the curtains were finally lifted on the reciprocal tariffs by the White House on April 2, imposing sweeping duties on all major trading partners. The base tariff rate was set at 10%, with the highest reaching up to 49%.

US President Donald Trump, on Tuesday, announced reciprocal tariffs on 180 countries, including the United States’ closest allies like India and its biggest rival, China. By imposing duties on all major trading partners, his administration has escalated a fresh round of trade tensions worldwide. 

This sweeping move by Trump has added another layer of uncertainty to the global economic landscape, raising concerns about supply chain disruptions, inflationary pressures, and the potential for retaliatory tariffs from affected nations. Economists believe this could bring further turmoil to the global economy and ultimately lead to a downturn.

Trump and the White House shared a series of charts on social media detailing the tariff rates they claim other countries impose on the US. These purported rates include factors such as 'currency manipulation' and 'trade barriers.'

China, the world’s second-largest economy, which has been implementing a series of fiscal and monetary measures to boost growth, may have to take additional steps as Trump’s fresh reciprocal tariff on China adds to existing duties, bringing the total tariff rate to 54% under his administration.

In India's case, Trump imposed 26% duties on Indian imports, which is lowest among Asian countries. Though Asia's third-largest economy is less dependent on the US for exports, the impact will be felt in key sectors such as automobiles, textiles, and jewelry.

In this article, we aim to explain why Donald Trump has been targeting all major countries with tariffs and what he hopes to achieve with this strategy.

Tariffs: Trump's favorite trade weapon

Trump, in many instances, said that 'tariffs' are the most beautiful word in the world, and he is showing his commitment to protectionist trade policies by implementing higher duties on countries that rely heavily on the US economy for their products.

The world witnessed Trump's policy actions during his first term in office between 2017 and 2021, and he has added more depth to his policies in the first few months of his second term as the country's fiscal deficit has expanded, making it difficult for the government to finance the larger shortfall.

Trump also promises to cut corporate taxes further, similar to what he did during his first term. Additionally, reports suggest that he is considering eliminating federal income tax, which could significantly widen the deficit. He believes that imposing tariffs will help boost domestic industries and bridge the budget deficit gap. 

He has been openly critical of the modern financial system, income taxes, and the Federal Reserve, even advocating for a return to pre-1913 policies, when tariffs served as the primary revenue source for the US government.

Why is Trump taking this step?

Reducing Deficit: Donald Trump has consistently pointed to the large US trade deficit with countries like China, Japan, and the European Union as a sign of economic imbalance. The US has the largest trade deficit with China, which is why, during his first term in office, he targeted Chinese imports with tariffs. These duties were further increased in his second term.

By imposing tariffs on multiple countries, Trump aims to narrow the trade deficit, which he believes will help American businesses grow and create more jobs in the country.

Boosting Domestic Industries: Higher tariffs will ultimately lead American consumers to buy the same goods locally, as the increased cost of imports makes domestic products more competitive. This, in turn, is expected to support U.S. manufacturers and strengthen local industries.

Revenue Source: The US economy is grappling with a widening budget deficit, which has been a growing concern for policymakers. President Donald Trump sees an opportunity to reduce this gap by increasing domestic revenue through higher tariff collections.

By imposing duties on imports from 180 countries, his administration aims to generate additional government income while simultaneously encouraging domestic production.

Regaining Control: Trump believes the US has not been taken seriously on the global stage for a long time. According to him, the United States has been exploited for 40 years, and now it is the country's turn to regain control and negotiate better trade deals in its favor. 

The implications

While Trump is making efforts to make America great again, consumers, corporations, and the US Federal Reserve are viewing tariffs through a different lens, as they believe tariffs could hurt their budgets, slow down businesses, and impact interest rate decisions.

The analysts have also been warning that US tariffs will lead to a major global trade war and that could push the US economy into a recession zone. Ignoring these warnings, Trump is making his moves.

Tariffs are effectively taxes on imported products, which consumers ultimately pay through higher prices. For businesses, they are a nightmare, as rising costs force them to make difficult financial decisions.

If import prices go up, companies will not cut their profit margins to absorb the cost; instead, they pass the extra cost on to consumers, tightening household budgets. If tariffs remain high for an extended period, they could impact corporate expansion plans, new hiring, and, in an effort to protect profits, lead to employee cost-cutting.

In retaliation to Trump’s tariffs, affected countries have already imposed countermeasures on U.S. products, which, in turn, are expected to impact country exports.

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.