What is reciprocal tariff? Why does Trump want to impose it on other countries including Malaysia?

What is reciprocal tariff? Why does Trump want to impose it on other countries including Malaysia?

03/04/2025

Trump signed an executive order on Wednesday to carry out his long-standing pledge to impose reciprocal tariffs on countries around the world. - Photo REUTERS


KUALA LUMPUR: A core element of the protectionist trade policy announced by US President Donald Trump on Wednesday is a planned import tax attack that he dubbed "Liberation Day" is reciprocal tariffs.

"Reciprocal. That means if they do it to us, we'll do it to them," Trump said at a news conference on Wednesday.

He promoted the tax as a way to boost domestic manufacturing and level competition with other countries that impose higher tariffs on US imports compared to US tax rates on their products.

However, some economists note that reciprocal tariffs with major trading partners could be difficult to arrange, as well as could disrupt global trade and increase costs for US consumers and businesses.


WHAT IS A RECIPROCAL RATE?


The actual reciprocal tariffs will impose the same taxes on U.S. imports as other countries impose on U.S. exports, on a per-product basis.

For example, if a country imposes a 6 percent tax on US-made shoes, Trump will tax them at the same rate on shoes from that country.

Currently, the U.S. and its trading partners impose different tax rates on the same product.

For example, Germany imposes higher tariffs on US-made vehicles than Washington's tariffs on German-made vehicles.

According to the Head of Policy and Advocacy at the Groundwork Collaborative, reciprocity means that if a country has higher tariffs than the U.S. on a particular product, the U.S. will raise it to the same level.

However, setting reciprocal tariffs for each product category with each trading partner will be difficult because there are tens of thousands of codes that determine the tax rates of various products.

RECIPROCAL RATES VS RATES BY COUNTRY

Rather than impose reciprocal tariffs directly, the White House announced country-specific tariff rates tailored to trade imbalances with the U.S.

Trump stated that his administration would impose reciprocal tariffs at a rate of about half the rate of duties imposed by other countries.

For example, the U.S. would match China's 67 percent tariff with a 34 percent tariff on Chinese exports to the U.S.

According to Jacquez, the rates charged may be mixed rates that are not reciprocal by product, but reciprocal on average by country.

WHO IS 'DIRTY 15'?

Trump administration officials have identified a group of countries known as the 'Dirty 15', which refers to the 15 percent of countries most affected by these reciprocal tariffs because of their trade surplus with the US.

Those countries include the US's largest trading partners such as China, the European Union (EU), Vietnam, Mexico, Germany and Malaysia.

Deputy Chief Global Economist at Capital Economics, Simon MacAdam, thinks that possible targets include key US trading partners such as China, the EU and Vietnam.

In 2024, the largest U.S. trade deficit around the world i.e. countries from which the U.S. imports more than it exports will be with the following countries, according to federal data:

- China (AS$295.4 bilion)

- European Union (US$235.6 billion)

- Mexico (AS$171.8 bilion)

- Vietnam (AS$123.5 bilion)

- Ireland (AS$86.7 bilion)

- Germany (US$84.8 billion)

- Taiwan (AS$73.9 bilion)

- Japan (US$68.5 billion)

- South Korea (US$66 billion)

- Kanada (AS$63.3 bilion)

- India (AS$45.7 bilion)

- Thailand (AS$45.6 bilion)

- Italy (US$44 billion)

- Switzerland (AS$38.5 bilion)

- Malaysia (AS$24.8 bilion)

- Indonesia (AS$17.9 bilion)

- France (US$16.4 billion)

- Austria (AS$13.1 bilion)

- Sweden (AS$9.8 bilion)

WILL RECIPROCAL TARIFFS INCREASE CONSUMER COSTS?

For now, it is still unclear what reciprocal tariff rates the US may impose.

However, experts note that reciprocal tariffs could add costs to businesses in the US, which in turn will drive up the prices of consumer products as companies try to maintain their profit margins.

According to Professor at Cornell SC Johnson School of Business, Chris Barrett, a tariff is a tax on businesses that bring products into the country.

"When a product is received at an entry point such as an airport or port, the company has to pay duty to allow it to enter.

"The price increase depends on the availability of alternative products. If there is no good replacement, users may have to incur higher costs. However, the price can also go down if the tariff is lowered after trade negotiations.

"The less sensitive the price of the product, the more likely it is that consumers will bear the burden of excise," Barrett said.