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As Jean-Baptiste Alphonse Karr (as well as a Bon Jovi song) famously notes: “The more things change, the more they stay the same.” But is that true? When I was working on Capitol Hill in the 1980s, the trade word of the decade was “reciprocity,” a term championed by Sen. John Danforth (R-MO), who chaired the Trade Subcommittee in the second half of the decade. The term eventually produced a revised version of Section 301 of the Trade Act of 1974, which gave the president authority to take action against countries engaging in acts, policies, or practices that are unjustifiable or burden or restrict U.S. commerce. The concept was to identify a problem, initiate negotiations to resolve it, and if they failed, impose penalties. Ready, aim, fire. Trump 1.0 turned that into ready, fire, aim, by putting the retaliation before the negotiations, an approach which did not turn out well with China.
Last week, Trump resurrected the word but put a new spin on it, arguing that simple tariff differentials between countries were unfair in addition to specific trade practices. In his mind, the United States is at a disadvantage because our tariffs are lower than everybody else’s, and he is proposing a new approach that would match our tariffs with each of those in other countries. For example, if India’s auto tariff were 40 percent, then the U.S. would put a 40 percent tariff on Indian autos. If the European Union tariff on autos were 10 percent, then the U.S. tariff on European autos would be 10 percent, and so on. Dartmouth Professor Douglas Irwin, in a Wall Street Journal editorial on February 13, pointed out that with about 200 countries in the world and 13,000 separate tariff lines, that would mean 2.6 million individual tariff rates depending on the product and the country of origin.
This would be difficult to construct and even more difficult to administer. Determining country of origin would be necessary in every case and would produce major opportunities for gaming the system by transshipping products from countries facing low U.S. tariffs.
Depending on how it is ultimately configured, this reciprocity will also produce anomalies. For example, Vietnam’s tariff on footwear is 30 percent. Does that mean our tariff on Vietnamese footwear will be 30 percent? Ninety-eight percent of American footwear is imported, and Vietnam is the second largest supplier after China. “Reciprocal” tariffs like these will add to inflation and disproportionately hurt poor people, who use a higher percentage of their income to purchase necessities like shoes.
Reciprocity also works the other way. New Zealand has no tariffs on dairy products. Will we match that and have zero tariffs on New Zealand dairy products? The same is true of Brazilian sugar. These are both cases where the United States is the protectionist, and you can be sure there will be cries from U.S. dairy farmers and sugar growers if U.S. tariffs are lowered to zero to reciprocate.
The Trump approach is also based on an overestimation of the extent the United States is disadvantaged. Bloomberg has published a map that shows which countries have higher tariffs than the United States. As you can see, most developed countries’ tariffs are lower or within 2 percent of ours. The highest tariffs are primarily in developing countries, who would be hurt the most by the U.S. action. (You can also use the map to predict likely Trump targets.)
I started with practical problems, but they are not actually the most important. As Professor Irwin pointed out in his editorial, the fundamental irony is that Trump is outsourcing U.S. tariff policy to other countries by allowing them to dictate what rate we will assess. That means, in effect, we are allowing other countries to decide what is in the U.S. national interest. If I were China, I would announce high tariffs on critical minerals and challenge the U.S. to do the same to their minerals. The presumed response from the Trump administration will be that they aren’t stupid. I hope not, but the whole concept is far from smart, and with 2.6 million tariff lines, mistakes are inevitable.
Another issue, as always when it comes to trade, is retaliation. While increased U.S. tariffs may be a justifiable rebalancing in Trump’s mind, for the victims they are unwarranted and illegal aggression. Not everyone will retaliate—with some 200 countries affected, you can be sure reactions will vary—but some will, and we can be sure there will be additional costs imposed on the American public as a result.
Finally, the biggest problem for an institutionalist like me is that the proposal destroys the rules-based international trading system we have so painstakingly built up over 75 years. That system was designed to liberalize trade and was based on the most favored nation (MFN) nondiscrimination idea—that a tariff concession granted to one must be granted to all. That system provided enormous benefits to everybody that participated in it, and now we are tossing it in the trashcan and returning to the Smoot-Hawley, law-of-the-jungle trade world. This will not end well. Trump apparently believes that because we are big, we can push everybody else around. In the short term, some countries will allow themselves to be pushed, but at the same time they will be making other connections and developing workarounds for the tariffs. We are already seeing the rest of the world moving ahead with trade agreements that exclude the United States. The long-term result will be a United States that is less important and less influential than it is now, where our manufacturers and farmers will find fewer markets for their products—the opposite of what Trump is expecting.
William Reinsch is senior adviser for the Economics Program and Scholl Chair in International Business at the Center for Strategic and International Studies in Washington, D.C.
