Financial Associated Press, February 14 (Editor: Shi Zhengcheng) - In the early hours of Friday in Beijing, U.S. President Trump signed a memorandum outlining the so-called "Reciprocal Trade and Tariffs" system for the first time. Under the pretext of matching the tax rates on imported goods between the USA and its trading partners, a bold "playing with fire" attempt to disrupt the status quo of global trade has been ignited at the White House.

According to official reports from the White House and interpretations from various institutions, here is what is currently known about Trump's "Reciprocal Trade and Tariffs" system.

Q1: What are "Reciprocal Trade and Tariffs"?

White House documents show that Trump's presidential memorandum orders the "development of a comprehensive plan" to reduce America's huge trade deficit.

According to Trump's instructions, the U.S. Treasury Department, Commerce Department, and Trade Representative's Office will intensify research in the coming weeks to develop specialized "Reciprocal Tariff Rates" for each of America's trading partners.

It should be noted that "Reciprocal Tariffs" are not just import tariffs, but a policy rate that considers multiple factors.

This system does not merely level the tariff rates between the USA and its trading rivals. Tariff rates of other countries, other taxes levied on U.S. goods (including value-added tax), industry subsidies, access thresholds and policy restrictions, currency depreciation, and labor wage levels are all factors that the Trump administration uses to evaluate the "Reciprocal Tariff Rate."

Q2: When will the implementation begin?

Currently, it is unclear. Considering the need to calculate a series of "reciprocal tariff rates" for each trading partner, this process may take several weeks or even months.

The next important milestone will be April 1. U.S. Commerce Secretary Lighthizer has stated that the study on tariffs will be completed before April 1. This is also the deadline set on Trump's first day in office, demanding Lighthizer and other economic advisors to report to him on plans for addressing trade imbalance.

According to the memo, the Director of the Office of Management and Budget needs to submit a written assessment of the financial impact of "reciprocal tariffs" on the U.S. federal government to the President within 180 days.

Q3: Which economies are most affected?

Overall, emerging economies that have not previously endured the impact of "Trump tariffs" will suffer more.

According to WTO tariff data, among the major trading partners of the USA, India and Brazil are the economies that may be most affected by "reciprocal tariffs". Due to Modi's visit to the USA, Trump specifically pointed out India after signing the memo, stating that "tariffs have always been very high".

(Note: The USA has free trade agreements with Canada, Mexico, and South Korea, theoretically with no commodity tariffs; meanwhile, the trade war initiated by Trump between China and the USA has been ongoing for nearly seven years.)

Q4: What issues has Trump not clarified yet?

As a policy affecting Global trade, "Trump's reciprocal tariffs" currently has two main uncertainties: whether the USA will truly set separate tax rates for thousands of products from every country, and how to Algo legal policies and other non-tariff factors into tariffs.

In the White House announcement, there is a clear mention of differential tariff treatment for specific commodities. For example, the import tariff rate for ethanol in the USA is 2.5%, while Brazil levies an 18% tariff on ethanol exports to the USA; the average most-favored-nation tariff for Agricultural Products in the USA is 5%, but the rate in India is 39%, and India imposes a 100% tariff on motorcycles from the USA, while the USA imposes a 2.4% tariff on motorcycle imports.

Meanwhile, Trump's demand for the imposition of a reciprocal value-added tax is also a form of hegemonic behavior that changes the concept. Although the USA does not have a federal-level value-added tax, states impose sales tax. The actual tax burden is similar to the value-added tax in regions like the EU, except that the taxpayer is not the federal government.

What American trade partners should be aware of is that market access, policies, and regulations may also become targets for "reciprocal tariffs".

According to reports, White House officials specifically named Japan when explaining the policy, stating that it has "high structural barriers." Japanese media interpret this as meaning that Trump may seek to intervene in the country's industrial product "specification standards" as well as its Agricultural Products import controls.

Q5: What is Trump's goal?

Based on Trump's application of tariff policy over the three weeks since taking office, forcing trade opponents to actively negotiate and meet his policy demands will be one of the goals of this policy.

Another goal on the table is to promote domestic manufacturing and employment in the USA. In an interview on Thursday, Trump specifically mentioned the chip industry, saying, "We used to have Intel and those great companies that performed well, and we want the (chip) Business back, we hope it can return to the USA."

Another rather dangerous trend is that Trump seems prepared to use increased tariffs to fill the fiscal deficit in the USA. According to American media reports, senior White House officials had revealed in a pre-briefing that the anticipated tariff revenue would "help balance the trillion-dollar budget deficit."

Q6: Will American consumers face higher inflation?

Yes, and Trump thinks so too.

He stated during a meeting with reporters: "Prices may rise in the short term... so Americans should be prepared for some short-term pain."

According to trade rules, American importers who pay tariffs will pass the costs onto retailers, who in turn will pass them onto consumers through price increases.

Deutsche Bank calculated that with 16% of American consumers' core spending on imported goods in 2024, a mere increase of 3.3% in effective tariff rates would mean consumers face an additional price inflation of up to 0.5%.

More importantly, this calculation does not account for retaliatory measures from American trade partners or other impacts of the "Trump tariffs."

According to calculations by the Peterson Institute, imposing a 25% tariff on goods from Canada and Mexico, along with a 10% tariff on goods from China, would be equivalent to imposing an additional $1,200 tax on each typical American family annually. It is evident that "reciprocal tariffs" will further increase the pressure on American consumers.

Q7: Will the USA face retaliation.

This is almost certain. Since Trump has already conducted a "global trade war" during his first term. Therefore, major economies including China, the EU, Canada, and Mexico have ready-made countermeasures, and actions against Trump will be more natural and fluid.

In response to Trump's threat of "Steel and Aluminum" tariffs, EU Commission President Ursula von der Leyen stated on Tuesday that unreasonable tariffs on the EU would not be overlooked— they would trigger firm and commensurate countermeasures.

Inspired by the previous US-EU trade war, the EU subsequently passed the "Anti-Coercion Instrument," designed specifically to deal with Trump's tariff policies. In addition to imposing retaliatory tariffs, the EU can further revoke Intellectual Property Protection for American technology giants and implement market bans on American financial giants, among other measures.

As for America's neighbors Canada and Mexico, they are among the first countries to be impacted by Trump's tariffs this year and have already tightened their countermeasures against the USA, such as imposing tariffs on exports to the USA.

Q8: So will the USA's economic growth be affected.

Yes. Wells Fargo & Co pointed out in Thursday's report that Trump's tariffs will harm the economic growth rate of the USA this year.

In fact, Trump is making an expensive political wager—betting that his supporting voters can endure higher levels of inflation, allowing him to complete a series of domestic and foreign political, diplomatic, and trade agendas within a limited timeframe.

In last year's USA election, because American voters could no longer tolerate the super high inflation during Biden's administration, they sent Trump back to the White House. Since the election last November, inflation in the USA has risen again, with the latest CPI annual rate data being 3% this Wednesday. Due to term limits, Trump can only stay in the White House for a maximum of 4 years while facing the midterm elections in 2026.

In response to the impact of tariff policies, Trump will rely on extending tax cuts and Musk's government efficiency plan to hedge against it. However, the question lies in the sequencing of the impacts brought about by this series of policies, and the broader trade conflicts may stifle investment and hiring under greater inflationary pressure.

Q9: Has Trump's "tariff card" been played out?

Unfortunately, it has not.

Although Trump claims that the intention of "reciprocal tariffs" is to create a level playing field, he has also made it clear that he will impose additional tariffs to satisfy his "America First" hegemonic policy.

In an interview, Trump stated that the 25% tariff on Steel and Aluminum will not be counted under "reciprocal tariffs," and the upcoming tariffs on Autos, Computer chips, and Pharmaceuticals will also be higher than "reciprocal tariffs."

According to the current "tariff schedule," the USA's 25% tariff on all goods from Canada and Mexico has been temporarily postponed to be implemented in early March, while the "Steel and Aluminum tariffs" will take effect on March 12.

Editor/ping