US “Reciprocal Tariffs”: What Do They Mean?

By Ian Sheldon (sheldon.1@osu.edu)

Currently the United States is on course to deviate from its World Trade Organization (WTO) commitments by unilaterally resetting all of its previously bound tariffs, President Trump referring to these as “reciprocal tariffs”.  However, the interpretation of reciprocity being presented is entirely at odds with the approach consistently applied by the WTO and its predecessor the General Agreement on Tariffs and Trade (GATT).  The GATT/WTO has followed first-difference (marginal) reciprocity, where trade negotiations focus on balancing concessions on tariffs, and thereby market access.  By contrast the administration is seeking full (level/mirror image) reciprocity in trade negotiations, i.e., given the United States applies a 2.5 percent tariff on imported automobiles, and the EU applies a 10 percent tariff, it is argued the United States should raise is tariff to 10 percent. In practical terms, given there are approximately 12,500 tariff lines in the US tariff schedule, and 165 members of the WTO, this would require potentially two million tariff variations.

Seeking full reciprocity ignores the reality of past trade negotiations, i.e., over eight rounds, the GATT/WTO has proceeded on the basis that there is a balance of trade concessions between member countries, tariffs being cut overall by an agreed formula.  However, in any deal there will be some set of politically sensitive sectors that are subject to differential tariffs across countries.  International economists and trade lawyers analyzing GATT/WTO have consistently pointed to the principle of first-difference reciprocity as being critical in trade negotiations and a key reason for its success in bringing down tariffs since 1947.   Of course, there is a convincing argument that emerging economies such as China and India should reduce their current bound tariffs, but this should be done through a renewed round of trade negotiations at the WTO.  Therefore, the United States unilaterally increasing its previously bound tariffs on the grounds of full reciprocity poses a very significant threat to global trade and the rules of the multilateral trading system which it helped to develop.