Published
April 03, 2025
The Trump administration’s announcement of “reciprocal” tariffs on approximately $3 trillion of imports — imposed in stages on April 5 and 9 — has been touted as a way to redress unfair foreign trade practices and foreign tariffs that are said to be far higher than those levied by the United States.
Unfortunately, these tariffs aren’t really reciprocal at all. More broadly, the topic attracts misinformation that should be corrected.
First, tariffs are taxes that are paid by Americans. Hitting Americans with the biggest tax hike in 50 years is a dubious way to punish foreign trade practices.
In addition, charts in wide circulation erroneously show U.S. exports face tariffs in Canada, Mexico, and South Korea of 3.8%, 6.8%, and 13.4%, respectively, citing World Trade Organization (WTO) data. The same charts show U.S. tariffs average just 3.3%.
That’s flat wrong. Americans enjoy reciprocal, tariff-free trade with those countries for nearly every product under the sun.
How Were These Tariffs Devised?
Officials had said the just-announced “reciprocal” tariffs would be a kind of “tariff smoothie” that included a tariff equivalent to the average duty imposed by the trade partner in question, topped up with extra percentage points representing a guesstimate for non-tariff barriers.
That’s not what we got. Instead, the administration has used a simple formula that divides any bilateral goods trade deficit by the total goods imported from the country in question. In short, it’s entirely about the bilateral trade deficit.
Further, in this framework, countries as diverse as Singapore and Brazil, with which the United States has bilateral trade surpluses, should have gotten a pass: But these countries are being slapped with a 10% tariff regardless.
Understanding Tariffs
Why Hit Trade Agreement Partners?
As mentioned, the United States has free-trade agreements with 20 countries, and these pacts swept away tariffs on more than 99% of tariff lines. This kind of “zero-for-zero” tariff reciprocity should have shielded them from tariffs. Indeed, the whole point of these agreements is to bar the door to tariffs on two-way trade.
Further, the United States has bilateral trade surpluses with FTA partners such as Colombia and Singapore, and yet they are being subjected to “reciprocal” tariffs. This doesn’t make sense.
Why Target Trade Deficits?
Trade deficits arise when a country like the United States spends more than it produces (as the United States does with its fiscal deficit of about 6% of GDP). Foreign trade barriers do nothing to add to America’s global trade deficit. The economist Joseph E. Gagnon of the Peterson Institute for International Economics recently summarized the matter well: “Although tariffs do not reduce trade deficits, they do reduce imports and exports, as well as total income.”
In fact, higher tariffs lead to higher trade deficits, not surpluses: 25 of the 30 countries with the world’s highest tariffs have trade deficits. The overwhelming majority of these high-tariff countries have very low incomes, and the few high-tariff countries with trade surpluses—such as Algeria, Chad, and Congo—serve as poor models for U.S. economic policy.
How Are Businesses Reacting?
What’s the Baseline?
The case of Vietnam is peculiar. The U.S. trade deficit with Vietnam has grown considerably in recent years as firms followed the implicit direction of Washington and shifted supply chains out of China. In other words, more imports from Vietnam — and a growing trade deficit with that country — was an objective of U.S. economic policy.
But looking at weighted average tariffs (which reflect the goods actually traded and tariffed), Vietnam levies a 2.6% tariff on imports from the United States, while the United States levies a 3.75% tariff on imports from Vietnam. (The latter is inflated by the large share of apparel and footwear imports, which the United States tariffs at much higher rates than most other goods.)
In this analysis, should the United States lower its tariffs to achieve reciprocity? Why would raising U.S. headline tariff rates to match Vietnam’s make more sense than recognizing that U.S. weighted tariff rights are already higher?
Is There a Better Way to Target Foreign Barriers?
Of course, the U.S. business community is far from quiet about foreign trade barriers that shut out U.S. exports. Many of these are catalogued by the Office of the U.S. Trade Representative in its annual National Trade Estimate on Foreign Trade Barriers. The Chamber is constantly raising issues appearing in this important report.
Given the success of America’s FTAs, the obvious pro-growth path to address foreign trade barriers is through negotiating them away in new trade pacts. The Chamber had a lot to say about this in our recent comments to the Office of the U.S. Trade Representative.
Let’s get back on that pro-growth path.
MEMO TO MEMBERS: Background Information on Reciprocal Tariffs
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About the authors
John G. Murphy
John Murphy directs the U.S. Chamber’s advocacy relating to international trade and investment policy and regularly represents the Chamber before Congress, the administration, foreign governments, and the World Trade Organization.
