Reciprocal Tariffs

Trump administration has opted for reciprocal tariffs, in which U.S. matches the import duties levied by other countries. Although it is? trickier to implement than universal tariffs, Containing inflationery impact is probably the reason why Trump? may have pivoted away from universal tariffs. (Note that no new tariffs have come into force except for additional 10% tariffs on Chinese goods. Steel and aluminium tariffs will happen on 12 March, while tariffs on Mexican and Canadian goods have been delayed until 4 March and might never see the light of day)

More than the reciprocal tariffs, its the VAT issue that has caused distress - Trump argues that the? VAT systems create an unfair advantage for countries that implement them. These systems impose taxes on imports while exempting exports from VAT, which is perceived as disadvantaging U.S. goods in global markets.

In theory, to avoid tariffs, the affected? countries could lower or abolish their tariffs or manufacture their goods in? US. Yet, there is a difficulty in lowering tariffs for one country only, as this would trigger the Most Favoured Nation (MFN) principle, Likewise implementing reciprocal tariffs would also conflict with the MFN clause, because it involves treating different countries differently based on their specific trade policies, undermining one of the key pillars of the WTO.

Avoiding tariffs seems to be an impossible task, especially since the memo is not limited to tariffs, nor VAT, but extends the investigation into non-tariff barriers such as digital trade barriers, exchange rates, and other unfair market access limitations.

While countries might? lower tariffs to US levels to avoid new tariffs, abolishing the VAT system is unlikely Globally, 175 countries have a VAT system, with the US being one of the few exceptions, using a sales tax system by state varying from 0% to 11.5%, instead. Since VAT is typically applied as a destination-based tax, meaning it is charged based on where the goods or services are consumed rather than where they are produced, it aligns with WTO principles.

Majorly affected economies : China has taken firm stance, implementing retaliatory measures to protect its interests against the 10% tariff hike from US, although the? measures?show China is taking care not to flip the proverbial table.

According to the WTO, the US has an average tariff rate of 3.4%, compared with an average rate of 5% in Europe. However the issue is with VAT - In EU, VAT revenues account for 7.5% of GDP and 18.6% of total tax revenues (as of 2022). The EU-27 average standard VAT rate was 21.5% in 2023.

South Korea has one of the largest tariff discrepancies, imposing an average of 13.6% on U.S. goods compared to the U.S.’s 1.9% on South Korean products. Korean electronics and automobiles are two sectors at risk.

Japan’s tariffs on all imports from the US average 3.2 per cent in 2025, compared with the 1.4 per cent that the US levies on Japanese goods, Although Japan does not impose tariffs on U.S. auto imports, Initially, reciprocal tariffs were thought to be for agricultural products, but now? greater?possibility that automobiles could also be targeted. If that happens, the effect on the Japanese economy will be several degrees greater.

India is a target due to its high average?tariff? of 9.5%?on U.S. goods, compared to the 3% tariff the U.S. imposes on Indian goods. Sectors in India most likely to be affected include textiles, pharmaceuticals, gems and jewelry, autos, iron and steel, and chemicals. With a $45 billion trade surplus with? U.S., India is vulnerable to tariff adjustments.

Affected Countries look to the WTO? to intervene.Too early to conclude that Washington is merely using? reciprocal tariffs for transactional objectives- the window for deals is still? seems open.?