Reciprocal Tariff Systems lead to nonsensical policies. Consider: China Exports Rare-Earth Minerals that are essential for the production of many high-technology goods. The us doesnt export such Goods to China. But if china were nonetheless to impose high tariffs on them, would the us then be required to impose real prohibitive duties on mineral imports from China?
It also is not clear if reciprocal really meantrocal. Some us industries are heavily protected from foreign competition. Will the US Match Tariff Rates on Products From Countries With Lower Tariffs On Us Goods? If new zealand does not impose any import duties on dairy products, will the us allow all new zealand Dairy into the us duty-free? If brazil does the same for us sugar exports, will the US reciprocate? Someone Should Ask Wisconsin Dairy Farmers or Florida Sugar Barons If they are ready to face open competition.
Behind the superficial appeal of reciprocal tariffs are two major fallacies. The first is that other countries are taking advantage of us in trade, and we know this because we have a trade deficit. But macroeconomic factors, such as the balance between domestic savings and investment and the flow of capital between countries, determine the trade balance – not tariffs. The US-Mexico-Canada Agreement, the Trump-Negotiated successor agreement to nafta, ensures that us goods have duty-free access to mexico and canada, as we also provide them. That’s equal treatment, or pure reciprocity, but it does not guarantee Balanced trade. The US Runs Trade Surpluses With Australia, Brazil, The Netherlands, The UK, Singapore and Most of Central and South America. Are the US Exploiting Those Countries? Does our trade surplus justify their putting tariffs on our goods?
Another fallacy is that other countries’ value-added taxes constitute discrimination against the us most European countries tax imported goods because they also levy taxes on domestic producers. In the end, barrels are taxes on consumption and don’t discriminate against imports. Even Adam Smith, a champion of free trade, accepted the idea that tariffs designed to equalize the tax treatment of domestic and foreign goods are legitimate because they level the playing field.
Reciprocal tariffs don’t make sense even using the Mercantilist logic that pervades the Trump Administration. A prolonged bout of inflation has made the American public sensitive about prices. The us should not be imposing tariffs that will raise the cost of living for American consumers on all manner of goods and justify it on the illusory basis of fairness and reciprocity. If we truly want reciprocity-Meaning zero tariffs on both sides-Thorn the answer is to conclude free-Trade Agreements with Willing Partners. The us could and should be negotiating such trade agreements with the European Union, Japan and other trading partners and allies. But the Trump Administration is obsessed with Mercantilism and Trade Balances.
Even worse, by threatening canada, mexico and colombia (with which we have free-trades agreements) with stiff tariffs over nontrade issues, the Trump administration has undermined the value of such agreements. If they no longer constrain us policy, they are no longer credible.
The Trump Administration thinks it’s using tariffs to beat up other countries. In reality, us businesses and consumers will take the hit. Even Mr. Trump’s Hero William McKinley said, “Commercial Wars are unprofitable.” Sadly, it’s advice that the administration seems likely to ignore.