The US president has pledged to target countries that impose taxes on US imports by imposing reciprocal tariffs.
Donald Trump has directed his team to begin calculating duties by early April, raising concerns about a potential global trade war that could also accelerate inflation in the US.
“On trade, I have decided for purposes of fairness, that I will impose a reciprocal tariff, meaning whatever countries charge the United States of America, we will charge them. No more, no less,” he stated on Truth Social.
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What is America’s trade position?
This is expected to lead to negotiations with numerous countries in an effort to reduce their tariffs and trade barriers. The US aims to decrease its goods trade deficit, which exceeded $1.2 trillion (£954bn) last year.
A White House official mentioned that countries with significant US trade surpluses may be the initial targets. According to the US Census Bureau, the top five are China, Mexico, Vietnam, Ireland, and Germany.
Trump’s total trade war
By embracing reciprocal tariffs, Donald Trump is essentially declaring a total trade war.
This could have a significant impact on global commerce, possibly being the biggest peacetime shock to trade.
His goal is to address the nearly trillion-dollar trade deficit, which he sees as a burden on American jobs.
By implementing tariffs, he aims to reduce the US deficit and potentially favor domestic production over imports.
His primary focus seems to be on major trading partners with whom the deficit is greatest.
This poses a challenge to the notion that Britain may escape the turmoil relatively unharmed.
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UK government minister Pat McFadden told Sky News’ Politics Hub with Sophy Ridge that Britain will adopt a “wait and see” approach towards the tariffs, without confirming if the government will retaliate.
Trump latest: New tariffs signal ‘total trade war’
If Mr. Trump follows through on treating VAT as a tariff, the UK could face tariffs as high as 24%, as stated by Paul Ashworth, chief North America economist at Capital Economics. While some estimates are lower, he believes that Britain would be the fourth most impacted, following India (29%), Brazil (28%), and the EU (25%).
This calculation takes into account VAT rates in combination with existing tariffs, but the Trump administration also plans to consider regulations, government subsidies, digital services taxation policies, and exchange rate policies.
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“Most people consider VAT to be a non-discriminatory tax since it applies to domestically-produced goods, creating a level playing field,” Ashworth explained.
However, the US contends that VAT is a form of discriminatory tariff due to America’s much lower average sales tax at the state level.
Narendra Modi and Donald Trump at the White House. Pic: AP
During a meeting with Indian Prime Minister Narendra Modi, Mr. Trump agreed to collaborate on artificial intelligence, semiconductors, and strategic minerals.
In a subsequent news conference, Mr. Trump criticized India’s high tariff rates, stating that it is challenging to export to India. He also mentioned Indian plans to purchase American oil and gas.
According to the World Trade Organisation, India’s tariff rates are the highest, with a simple average rate of 17% for all products, in contrast to the US’s 3.3%.