By Milton Koch, International Trade Advisor at Buchanan, Ingersoll & Rooney. He is an APP member. He can be reached at milton.koch@bipc.com. First appeared in the April 5, 2025 Asia Policy Calendar.
On April 2, 2025, President Trump announced that he is imposing a baseline tariff of 10 percent on imports from all countries, with higher reciprocal tariffs applied to countries which have an “unfair” trade relationship with the U.S, based upon the size of the trade deficit with each country. The reciprocal tariffs represent a significant increase in U.S. protectionist trade action and from actions taken by the Trump administration in its previous first 100 days. Specifically, Trump declared a national emergency to address the “the large and persistent trade deficit that is driven by the absence of reciprocity in our trade relationships.”[1]
The Reciprocal Tariff Policy Executive Order lays out the details for how reciprocal tariffs will be implemented. First, a 10 percent tariff applies to all merchandise imported into the United States from April 5 onward. Second, Annex I sets forth the country-specific tariff rates, with countries with a higher net trade deficit with the United States receiving a higher rate. For example, Japan and Korea’s reciprocal tariff rates are 24% and 25% respectively. In comparison, Vietnam’s rate is 46%, ensuring that Vietnamese exports to the United States will decrease and resulting in more balanced trade.
To date, only limited exemptions from the reciprocal tariffs have been announced. One path is through merchandise having either sufficient U.S. or USMCA compliant content. The Executive Order states that the tariff rates apply only to non-U.S. content, “provided at least 20 percent of the value of the subject article is U.S. originating.”[2]
For merchandise that qualifies as from Canada or Mexico under the USMCA, the reciprocal tariffs do not apply. Additionally, the Executive Order indicates that the reciprocal tariffs do not apply to any merchandise for which a Section 232 national security tariff applies (autos, steel, aluminum, etc) and products listed in Annex II such as lumber, pharmaceuticals, and other products. Many of these products, such as pharmaceuticals, still have low or limited tariffs applied.
The reciprocal tariffs are broad and serve as a floor on many imports. The Reciprocal Tariff Policy Executive Order includes a modification mechanism to increase tariffs if other countries retaliate or U.S. manufacturing capacity and output worsens. Steps taken by other countries to reduce non-reciprocal trade may also result in reduced duties. Japan Prime Minister Shigeru Ishiba spoke by telephone today with President Trump; the two countries will designate high-level teams to negotiate tariffs. U.S. Treasury Secretary Scott Bessent will lead the U.S. side.[3]
Going forward, there may be opportunities to pursue exemptions from the reciprocal tariffs or to add tariffs to additional products. The recent Section 232 Steel and Aluminum tariffs also included a mechanism to add derivative products. While the process is not expected to start until May, the Bureau of Industry and Security modified the Section 232 Aluminum 25% tariffs last week to include aluminum cans.
No comments:
Post a Comment
Intelligent comments and additional information welcome. We are otherwise selective.