U.S. President Donald Trump disembarks Air Force One in West Palm Beach, Florida on March 28, 2025.
| Photo Credit: Reuters
Under the ‘Fair and Reciprocal Plan,’ the Donald Trump administration is countering “non-reciprocal trading arrangements with trading partners by determining the equivalent of a reciprocal tariff with respect to each foreign trading partner”. The non-reciprocal trading relationship is assessed based on tariffs, discriminatory taxes, non-tariff barriers (including subsidies and restrictive regulations), exchange rate manipulations, and any other practice deemed to limit U.S. market access or impede American firms from competing.
In 2010, countries across the world sent 12% of their total merchandise exports to American shores. By 2019, one year before the pandemic, the U.S. share of world exports had only risen to 13%. The share stood at 13.4% in 2022, the latest year for which internationally comparable data on merchandise exports are available for the largest sample of the world’s trading economies. Thus, roughly 87% of global merchandise exports are currently traded among countries that do not include the U.S.
Of course, there are variations around this average. For instance, the Cayman Islands and Bermuda in the Caribbean export almost 85% of their goods to America. The U.S. also accounts for over 75% of Canadian and Mexican merchandise exports. At the opposite end of the spectrum, 81 out of 160 countries, for which data were available from UN Comtrade for 2022, exported less than 5% of their total goods to the U.S. For 26 of these 81 countries (many from Africa), the U.S. share was less than 1%. The average U.S. share across the 160 countries was 11.4%, while the median was much lower at 4.7%. Less than a fifth of Indian, Chinese, and EU merchandise exports (18%, 16%, and 19%, respectively, in 2022) were destined for the U.S.
Now, let us look at the tariff picture and compare U.S. tariffs on partner exports vis-à-vis partner tariffs on U.S. exports. The latest tariff data available for this comparison are from UNCTAD TRAINS for 157 trading partners of the U.S., mostly for the year 2022. The European Union is considered a single partner given its common external tariff.
The average import-weighted tariffs on U.S. exports in 27 partner countries are lower than the corresponding U.S. tariffs. Technically, the concept of reciprocal tariffs works as a threat and a bargaining tool only when U.S. tariffs are lower than those in the partner country.
Considering only tariffs, this simple analysis thus rules out almost a fifth of all countries for which comparable tariff data are available from the ‘Fair and Reciprocal Plan.’ These countries include Canada, the EU, Japan, and the U.K. — among America’s largest trading partners, which together accounted for half of total U.S. merchandise exports in 2022. In fact, U.S. commercial interests could be harmed if these countries imposed reciprocal tariffs on American merchandise exports instead.
Of the remaining 130 countries where the Trump administration perceives a tariff disadvantage, the magnitude of the tariff increase needed to nullify the disadvantage is less than 5% in 57 countries, including China and India. Moreover, in 15 of these 57 countries, the U.S. needs to increase its import-weighted tariffs by less than 1% to restore parity with partner tariffs. Thus, the threat of reciprocal tariffs may be more credible in the remaining 73 countries worldwide, where U.S. bilateral tariffs need to be raised by more than 5%.
Interestingly, however, the magnitude of the tariff hikes in these cases is positively correlated with the U.S. export shares in the partner countries. Put simply, pursuing the policy of reciprocal tariffs against partners where there is a significant tariff differential results in raising average import duties on exports from countries for whom the U.S. is an important destination market. There is extensive commentary on how tariffs are a self-defeating policy. The correlation above only compounds the self-inflicted harm that a policy of reciprocal tariffs brings to the U.S.
This simple analysis is at the aggregate level, and more detailed product-level bilateral tariff and U.S. export share comparisons might be more revealing. However, based on this simple analysis, could partner countries be tempted to divert their exports to other countries in response to large reciprocal tariffs? After all, even today, 87% of global merchandise exports do not involve the U.S. While there are obvious costs to finding new export markets and trading partners, the experience during the pandemic has shown that firms adapt to external shocks quicker than governments.
Removing barriers
The best policy response to reciprocal tariffs is for impacted countries to remove barriers to doing business, both internally and with their non-U.S. trading partners. This is also the time to enhance regulatory cooperation and reduce regulatory bottlenecks to cross-border trade with the rest of the world, not just in goods but also in services.
The World Bank and World Trade Organization reports show that exports of digitally delivered services have grown faster than those of all other services and goods during the last decade. My own research also shows that preferential trade agreements, which include provisions on regulatory behind-the-border issues, have the most positive effect on digital services trade. Instead of wasting scarce resources on retaliatory tariffs, countries will be much better served if policymakers focus on issues that matter.
Anirudh Shingal is a Professor in the Finance & Economics faculty at the S.P. Jain Institute of Management & Research, Mumbai, and a Visiting Fellow at the Centre for Social and Economic Progress, New Delhi .The views expressed are the writer’s own and not those of the affiliated organisations
Published – April 03, 2025 01:24 am IST