Recently, the newly elected President of the United States, Donald Trump, announced a comprehensive imposition of equal tariffs on all American trading partners in the name of “fairness.”
On February 13, the President confirmed during a speech in the Oval Office of the White House that regardless of the tariffs other countries impose on the U.S., he will reciprocate with corresponding tariffs.
“The effects of reciprocal tariffs are excellent,” President Trump told reporters. “It is a beautiful, simple system, where we don’t have to worry about charges being too high or too low.”
The Commerce Secretary nominee appointed by Trump, Howard Lutnick, accompanied the President in the Oval Office while meeting with reporters, indicating that tariffs could come into effect as early as April 2 after related studies are completed.
Here are five key points to focus on in President Trump’s latest tariff plan:
Reciprocal tariffs are more likely to affect emerging market economies such as Brazil, India, Vietnam, as well as some countries in Southeast Asia and Africa, as many economies in these countries currently have significant tariff gaps with the United States.
According to data from the World Bank released in 2022, the weighted average applied tariff rate for all products that India imposes on the U.S. is about 9.5%. In contrast, the U.S. imposes an average tariff rate of about 3% on imports from India.
President Trump said to reporters, “Traditionally, India has the highest tariffs,” noting that due to high tariffs, products from large U.S. motorcycle manufacturer Harley-Davidson cannot be sold in India.
He made these remarks before meeting with Indian Prime Minister Narendra Modi in the Oval Office on February 13.
“They have higher tariffs than any other country,” President Trump said. “We will address this issue.”
The President also specifically mentioned Taiwan, stating that all chip production has shifted from the U.S. to Taiwan and he hopes to bring manufacturing back to the U.S.
In 2023, Taiwan imposed an overall average nominal tariff rate of 6.34% on imported goods, ranging from 4.13% for industrial products to 15.06% for agricultural products.
The International Trade Administration under the U.S. Department of Commerce stated in a report in January 2024, “The U.S. industry continues to urge Taiwan to lower tariffs on many products.”
President Trump warned that BRICS countries might face 100% tariffs.
In recent years, BRICS countries, led by Brazil, Russia, India, China, and South Africa as an emerging market group, have been advocating the de-dollarization initiative, promoting bilateral trade settlement in local currencies.
On February 13, President Trump declared, “The BRICS countries are dead.”
The President had repeatedly pledged that if any country participates in efforts to de-dollarize, he would impose tariffs on those countries. Shortly after the November 2024 elections, he threatened to impose tariffs on BRICS countries attempting to replace the U.S. dollar as a reserve currency.
“They don’t dare talk about this issue because I told them that if they want to play with the dollar, they will be hit with a 100% tariff,” President Trump said.
“Now they don’t have many choices left.”
However, some observers believe that Trump’s tariff strategy could push other countries towards diversifying away from the U.S. dollar in the long run.
Chris Mancini, portfolio manager at Gabelli Gold Fund headquartered in Connecticut, wrote in a recent report, “I believe that countries subjected to tariffs and potential punitive tariffs will attempt to diversify away from the dollar and invest in other assets as their reserve currency.”
Trump’s reciprocal tariffs also target the European Union’s value-added tax (VAT), a consumption tax applicable to the production and distribution process of all domestic and imported goods and services within that trade bloc at each stage.
Unlike sales tax, VAT is collected at each stage of sale, not just the final sale.
The White House stated that the EU’s average standard VAT rate is 21.8%, making the tariff rates on U.S. exports entering the region nearly three times that figure.
Lutnick described it as an “export subsidy” since the EU waives VAT when selling products to the U.S.
“We will address the issues with each country one by one, but the key is: they will be invited to trade with the world’s largest consumer economy,” Lutnick told reporters.
“As a condition for trading with the world’s largest consumer economy, you must treat us the way we treat you.”
U.S. cars shipped to the EU face a 10% tariff. In contrast, European cars entering the U.S. only incur a 2.5% tariff.
According to Deutsche Bank based in Frankfurt, Germany’s analysis, countries facing a sudden increase in U.S. tariffs will include India, Argentina, South Africa, and European countries when considering VAT.
President Trump mentioned that pharmaceuticals and semiconductors could also be affected by the latest tariff measures.
He noted that Taiwan took over U.S. chip companies, while China took over U.S. pharmaceuticals.
“We want these industries back in the U.S.,” he told reporters. “We won’t be happy until we bring them back.”
In recent years, pharmaceutical products have been the top imported goods from the EU into the U.S., with a total exceeding $90 billion in 2022. Therefore, these tariffs could significantly impact the drug and medical industry, including items such as weight loss pills and surgical equipment.
Many economists believe that President Trump’s new tariff plan could rekindle inflation pressures. Trump disagrees, telling reporters that his tax plan will have minimal impact on inflation.
“Prices may rise in the short term, but they will also fall,” he said. “So, Americans should be prepared for short-term pain.”
“In the end, prices will remain the same or even drop.”
While President Trump acknowledged there might be some “short-term disruptions,” he expressed that in the long run, the U.S. will benefit.
President Trump said he believes these tariff policies will create more job opportunities for the U.S.
“We know that there will be job opportunities at levels never seen before,” Trump said.
The President also expects that his economic agenda will help lower interest rates.
Last month, the Federal Reserve kept rates unchanged, and the latest inflation report prompted investors to reconsider their monetary policy expectations. Futures markets are projecting the next quarter-point rate cut to be scheduled for September this year.
Federal Reserve Chairman Jerome Powell, in testimony before Congress this week, stated that the Fed will not rush to cut interest rates before progress is made on inflation.
President Trump posted on the “Truth Social” platform on February 12 urging for interest rate cuts.
“We should cut interest rates, which will go hand in hand with the upcoming tariffs!” the President wrote on his social media account, “Let’s get moving, America!”
When asked about the revenue generated from government tariffs, Trump said it would be “an astonishing figure.”
According to data released by the independent policy organization “Committee for a Responsible Federal Budget” based in Washington, President Trump’s 25% tariffs on Canada and Mexico and 10% tariff on China could generate approximately $13 trillion in income over the next ten years.