The President Donald Trump ordered on Thursday his advisors to establish new tariffs for all US trading partner countries. This is a massive move which threatens the global trade system, and will set off fierce negotiations around the world.
Signed on Thursday, the memorandum instructs officials in accounting for different trade barriers, such as tariffs, tax, subsides and currency policy, imposed by other countries.
This move reflects the President’s longstanding complaint that the United States has been exploited in international trade.
Trump stated that he wanted to restore manufacturing jobs to the US from his Oval Office.
He said that if you built your product in America, no tariffs would apply.
The new tariff structure was to be quickly designed by Howard Lutnick, nominee for Commerce Secretary, and Jamieson Greer nominee for Trade Representative.
The New York Times reports that a White House official who spoke on the condition of anonymity said, “The administration expects to finalize the plan soon.”
Breaking with decades of Trade Policy
Since decades, US tariffs have been determined by negotiations with international trade organizations such as WTO.
This new approach, which is likely to lead to higher tariffs, would represent an unilateral departure from this framework and Washington’s sole discretion for setting levies.
Trump’s recent action comes after he imposed 25% tariffs on imports of steel and aluminium, as part of an effort to combat what he views as unfair trade practices.
He described them as the “first of many” tariffs on Monday.
New tariffs may have a wide range of economic effects, and could lead to the retaliatory actions from US trading partners.
However, the administration has indicated that other countries may have an opportunity to negotiate on tariff rates.
The United States, Japan and India are likely to be the targets
Trump’s team of trade experts has identified the European Union (EU), Japan and India as possible targets.
White House criticizes Europe’s VAT, claiming that the tax is unfair to US exporters.
Peter Navarro (the president’s top trade advisor) called the European VAT a “posterchild” of unfair trade. He cited Germany’s high auto exports, while importing many fewer American vehicles.
“President Trump will no longer tolerate this,” Navarro stated.
The Trump plan for fairness and reciprocity will end such exploitation.
US is one of few developed countries without value added tax. European nations levies it at an average of 22 percent.
Trump’s plan seeks to offset these costs by introducing new tariffs.
Potential trade wars on several fronts
Trump’s proposal is a radical departure from US trade policies in the past, which have generally sought to reduce international trade barriers.
The US could escalate disputes both with its allies and rivals by matching the tariffs imposed on foreign goods.
Although no decision has yet been taken, the administration also proposed a “universal” tax to help reduce the US’s trade deficit.
Tariffs can be justified under the new plan using a variety of legal provisions, such as Section 232, which is for concerns about national security, and Section 301, for unjustified trading practices.
Trump’s aggressive policies on tariffs has already roiled global markets in recent weeks.
US imposed 10 percent on all Chinese imports. They were close to applying sweeping tariffs to Canada and Mexico, but agreed to temporarily delay the implementation of these levies for 30 days.
Trump may have framed his new tariffs to be a way to restore balance in the trade but they are also a means to pressure countries to give American firms better access to overseas markets.
It is unclear whether this strategy will lead to better trade conditions or a global trade war that lasts for a long time.
The information in this post Trump’s Reverse Tariffs on the EU, Japan and India: Here’s What We Know may change as new developments unfold.
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