Trump orders plan for new tariffs amid rising inflation
Shreedhar Rathi | Feb 14, 2025, 08:14 IST
( Image credit : AP )
President Donald Trump has initiated efforts to implement reciprocal tariffs, aiming to level the trade playing field and address the U.S. trade deficit. This move targets countries with high tariffs on American goods but risks provoking a global trade conflict and potentially increasing consumer costs.
President Donald Trump has intensified his push for trade reform, directing federal agencies on Thursday to explore plans for new reciprocal tariffs. This move, aimed at increasing U.S. revenue, risks escalating global trade tensions while also potentially fueling inflation.
Howard Lutnick, Trump’s nominee for Commerce Secretary, stated that the investigation is expected to conclude by April 1, after which the president will decide whether to implement the proposed tariffs. The initiative aligns with Trump’s campaign promise to combat what he views as unfair trade practices by imposing equal tariffs on foreign nations that tax American goods.
“They charge us a tax or tariff, and we charge them the exact same,” Trump said before signing a memo titled the “Fair and Reciprocal Plan.” He emphasized that his administration will also consider the impact of value-added taxes (VAT), which he described as “far more punitive than a tariff.”
A White House fact sheet argued that the U.S. maintains one of the world’s most open economies while facing barriers from trading partners. “This lack of reciprocity is unfair and contributes to our large and persistent annual trade deficit,” the document stated.
Trump singled out India as a key offender, claiming it imposes the highest tariffs on U.S. goods, specifically mentioning the 100% tariff on American motorcycles compared to the U.S. tariff of 2.4% on Indian motorcycles. He suggested India could avoid new tariffs by increasing production within the U.S. “If you build here, you have no tariffs whatsoever,” he said, expressing confidence that such a shift would generate American jobs.
According to the U.S. Trade Representative, the country’s weighted average import tariff rate on industrial goods is currently 2%. Industrial goods include a wide range of products such as automobiles, textiles, and petroleum. Roughly half of all U.S. industrial imports enter duty-free.
The administration argues that many countries impose disproportionately high tariffs on American exports. “Our workers and industries bear the brunt of unfair practices and limited access to foreign markets,” a White House official said.
However, economists warn that tariffs could raise costs for American consumers, especially as inflation begins to climb again. While Trump acknowledged the possibility of short-term price increases, he insisted that costs would eventually decline. “Americans should prepare for some short-term pain,” he said.
Trump’s tariff strategy aims to raise revenue to offset the extension of his 2017 tax cuts. Yet, experts caution that importers typically pass tariff costs to retailers, who in turn raise consumer prices. Some prominent conservatives, including the Wall Street Journal editorial board and Senator Mitch McConnell, have criticized the move, warning of economic repercussions for American households.
The proposed tariffs are expected to target countries with large trade deficits with the U.S., including India, Brazil, and Vietnam. Additionally, Trump’s focus on VAT policies could lead to increased tariffs on goods from major European economies like Germany, Italy, and Ireland. Products such as pharmaceuticals, medical equipment, and automobiles—key European exports to the U.S.—could see price hikes.
Aaron Klein, a former Treasury official now at the Brookings Institution, warned that the policy risks igniting a global trade conflict. “Enacting reciprocal tariffs in response to VAT is just going to be starting a trade war,” he told CNN.
Despite concerns, Wall Street remained largely unfazed. Stocks climbed after Trump’s announcement, as investors speculated that the administration might not enforce tariffs immediately. The Dow rose 343 points (0.8%), while the Nasdaq gained 1.5% and the S&P 500 increased by 1%.
Michael Block, market strategist at Third Seven Capital, remarked that Trump often moderates his rhetoric after initial announcements. “We fear the worst and then realize it’s all part of the art of the deal,” he said.
Analysts suggest Trump may use tariffs as a negotiation tool, delaying implementation or adjusting policies based on trade discussions with foreign leaders. Keith Lerner, co-chief investment officer at Truist Wealth, predicted that tariffs may not be as severe as initially suggested. “It’s not like tomorrow we’re going to suddenly have 50% tariffs across the board,” he said.
Nonetheless, the uncertainty surrounding trade policies could impact business investment and influence the Federal Reserve’s approach to interest rate decisions. As Trump prepares to meet with Indian Prime Minister Narendra Modi, trade relations will be a focal point, with potential agreements determining the scope and timing of new tariffs.
Howard Lutnick, Trump’s nominee for Commerce Secretary, stated that the investigation is expected to conclude by April 1, after which the president will decide whether to implement the proposed tariffs. The initiative aligns with Trump’s campaign promise to combat what he views as unfair trade practices by imposing equal tariffs on foreign nations that tax American goods.
“They charge us a tax or tariff, and we charge them the exact same,” Trump said before signing a memo titled the “Fair and Reciprocal Plan.” He emphasized that his administration will also consider the impact of value-added taxes (VAT), which he described as “far more punitive than a tariff.”
A White House fact sheet argued that the U.S. maintains one of the world’s most open economies while facing barriers from trading partners. “This lack of reciprocity is unfair and contributes to our large and persistent annual trade deficit,” the document stated.
Trump singled out India as a key offender, claiming it imposes the highest tariffs on U.S. goods, specifically mentioning the 100% tariff on American motorcycles compared to the U.S. tariff of 2.4% on Indian motorcycles. He suggested India could avoid new tariffs by increasing production within the U.S. “If you build here, you have no tariffs whatsoever,” he said, expressing confidence that such a shift would generate American jobs.
Justification for Reciprocal Tariffs
The administration argues that many countries impose disproportionately high tariffs on American exports. “Our workers and industries bear the brunt of unfair practices and limited access to foreign markets,” a White House official said.
However, economists warn that tariffs could raise costs for American consumers, especially as inflation begins to climb again. While Trump acknowledged the possibility of short-term price increases, he insisted that costs would eventually decline. “Americans should prepare for some short-term pain,” he said.
Potential Economic Impact
The proposed tariffs are expected to target countries with large trade deficits with the U.S., including India, Brazil, and Vietnam. Additionally, Trump’s focus on VAT policies could lead to increased tariffs on goods from major European economies like Germany, Italy, and Ireland. Products such as pharmaceuticals, medical equipment, and automobiles—key European exports to the U.S.—could see price hikes.
Aaron Klein, a former Treasury official now at the Brookings Institution, warned that the policy risks igniting a global trade conflict. “Enacting reciprocal tariffs in response to VAT is just going to be starting a trade war,” he told CNN.
Wall Street’s Reaction
Michael Block, market strategist at Third Seven Capital, remarked that Trump often moderates his rhetoric after initial announcements. “We fear the worst and then realize it’s all part of the art of the deal,” he said.
Analysts suggest Trump may use tariffs as a negotiation tool, delaying implementation or adjusting policies based on trade discussions with foreign leaders. Keith Lerner, co-chief investment officer at Truist Wealth, predicted that tariffs may not be as severe as initially suggested. “It’s not like tomorrow we’re going to suddenly have 50% tariffs across the board,” he said.
Nonetheless, the uncertainty surrounding trade policies could impact business investment and influence the Federal Reserve’s approach to interest rate decisions. As Trump prepares to meet with Indian Prime Minister Narendra Modi, trade relations will be a focal point, with potential agreements determining the scope and timing of new tariffs.