Trump vs. World: Universal Baseline Tariffs

In the last two weeks I’ve covered key points from former President Trump’s second term trade proposal , specifically increased tariffs on China connected to losing Most Favored Nation status , and emerging concepts of essential goods and conduit countries . This week I want to cover perhaps the highlight of this trade position, universal baseline tariffs.

Of all the policy that is provided in this position, universal baseline tariffs may be the intended takeaway. After all, it is at the very top, underlined and in bold. While not provided in the position itself, it has been reported that the universal baseline tariff will be a new 10% tariff on all goods imported into the United States. Robert Lighthizer clarified in an interview that these tariffs would be in addition to existing tariffs, not a replacement.

There are still many questions about these universal tariffs, the most prominent of which is whether these tariffs will equally apply to US free trade agreement partners. Applying the tariff to free trade partners will be somewhat surprising, particularly considering how damaging these tariffs would be to the USMCA agreement, a key achievement of the first Trump Administration. Robert Lighthizer in his book No Trade is Free acknowledges the need for regional integration for example in Europe and North America. But in reading Ambassador Lighthizer’s book, it is also clear that he is a dedicated negotiator who absolutely prioritizes the interest of the United States and American workers, perhaps never viewing any trade relationship as fully settled. While not addressed in the book, we can speculate whether Lighthizer believes the US should have free trade agreements at all, instead preferring a continual joust to ensure interest and balance. Let’s remember the title of the book is “No Trade is Free”, a shot at the concept of free trade and free trade agreements. So is it shocking that Ambassador Lighthizer would spit on the status quo as well as his previous work and achievements if he thinks he could further the interest of the United States?

Universal baseline tariffs would be challenge for US free trade partners, putting their status nearly in line with all other Non-China nations. However, if FTA partners are in fact spared, this will be an incredible windfall. I predict we would see a gold rush-like environment in Mexico as operations in an FTA country become a competitive necessity. Whatever the resolution is, it seems universal baseline tariffs will be momentous for the US's free trade agreement partners.

It will also be an interesting change in US policy if universal baseline tariffs are truly flat across all product categories. While the US’s current Most Favored Nation tariffs are not high by global or historical standards, usually under or around 5%, in reading the code it becomes clear that existing policy attempts to protect certain products and industries while allowing free trade in others. It will be interesting to see the effects of a large economy such as the United States not making these choices between industries. If universal baseline tariffs are implemented, I am curious if we will see a faster and more significant rebound in domestic industries such as consumer electronics, which currently enjoy very little protection.

A detail that is easy overlook: Universal baseline tariffs will also apply to China. I am realizing we should really be thinking of 60% tariffs on Chinese goods as 70% tariffs, with the new universal 10% added in.

Another question about universal tariffs: how would the second Trump Administration prevent or manage trade retaliation by other countries? It seems obvious that other powers, most notably the EU, would be interested in imposing their own countermeasures. The answer to this I believe lies in another of Trump’s Agenda47 policies, the Trump Reciprocal Trade Act . This act would give the President power to increase duties on goods from specific nations to match the level these nations charge when receiving US goods. Not only would this policy be useful for taking on countries with high Most Favored Nation tariffs, such as India, it could also be used as new trade war tool. Using this policy, if foreign powers targeted the US with a 10% tariff that they felt was reciprocal, the US would use this law to raise tariffs on goods coming from that country by an additional 10% to a total of 20%. The Trump Administration would argue that since their tariffs were universal, but response tariffs were targeted at the United States, these actions were not in fact reciprocal and it would be within the US’s right to respond. It stands to reason that the only truly reciprocal response that would be accepted by the Trump Administration would be for other nations to impose their own universal tariffs, which given global trends toward free trade and factors such as colonial legacies seems unlikely.

Unlike other aspects of Trump’s trade policy, it seems this power will take an act of Congress. We should therefore also keep our eye not only on the Presidential election but the balance in the House and Senate. Without this ability to impose reciprocal tariffs, it seems the US would be quite exposed to retaliation when implementing universal baseline tariffs. Congressional and Executive action also tend to move at different speeds; we should watch to see if there will be a period before reciprocal actions can begin, and consider what could occur in the interim.

A final thought: What would be the effects of universal baseline tariffs be on US insular possessions, Guam and the Northern Marianas, America Samoa, and the US Virgin Islands? These places are part of the United States, but historically have been outside of customs territory of the US, free to set their own tariff policies. A 10% tariff between different parts of the United States could be quite a step against national unity and weaken the economies of these islands. However, if not closing this loophole, we could see Saipan explode as manufacturing boomtown for not just clothing but all sorts of goods. Similar to the US’s free trade partners, it seems universal baseline tariffs must have a massive impact on these territories.

Of all Trump’s trade policy proposals, universal baseline tariffs may have the most far reaching effects, into all industries, for all international trade relationships. Even domestic producers with largely domestic supply chains should prepare, as they may be poised for competitive advantage. If your business could use help considering the implications of universal baseline tariffs, I hope you will reach out to me at [email protected] .