Trump orders review of new tariffs amid rising inflation concerns
Shreedhar Rathi | Feb 14, 2025, 08:30 IST
( Image credit : IANS )
President Donald Trump is pushing for reciprocal tariffs targeting countries with high tariffs on U.S. goods, aiming for fairer trade policies. This initiative risks raising consumer prices and intensifying global trade tensions. A review is expected to conclude by April 1, with a decision as early as April 2.
President Donald Trump has directed federal agencies to explore new reciprocal tariffs, doubling down on his push for "fairer" trade policies even as inflation continues to rise. The proposed tariffs, aimed at foreign nations imposing taxes on U.S. goods, could generate revenue but also risk escalating global trade tensions and adding pressure to consumer prices.
Commerce Secretary nominee Howard Lutnick stated that the review is expected to conclude by April 1, with Trump set to decide on implementing tariffs as early as April 2. Reciprocal tariffs have been a cornerstone of Trump's trade policy, which he argues will level the playing field for American businesses.
“They charge us a tax or tariff, and we charge them the exact same,” Trump said before signing the Fair and Reciprocal Plan memorandum in the Oval Office on Thursday.
Trump emphasized that the U.S. would also consider the impact of value-added taxes (VAT) imposed by other countries, which he described as "far more punitive than a tariff."
The announcement came ahead of Trump’s scheduled meeting with Indian Prime Minister Narendra Modi. Trump singled out India as a key offender, stating, “They charge more tariffs than any other country.”
A White House fact sheet highlighted India’s tariff policies, noting that the country imposes a 100% tariff on U.S. motorcycles while the U.S. charges only 2.4% on Indian motorcycles. Trump suggested India could avoid new tariffs by increasing its manufacturing presence in the United States.
“If you build here, you have no tariffs whatsoever. And I think that’s what’s going to happen,” he said.
Trump has positioned tariffs as a tool to raise revenue and fund tax cuts, but economists warn they could increase costs for American consumers.
“Prices could go up somewhat short term, but prices will also go down,” Trump said, acknowledging potential price increases while maintaining his long-term economic outlook.
Tariffs are typically paid by importers, who pass costs on to retailers and consumers. Critics, including the Wall Street Journal editorial board, have questioned the economic rationale, while Senator Mitch McConnell criticized Trump’s tariff strategy as an unnecessary burden on American families.
The proposed tariffs are expected to target countries with significant trade imbalances with the U.S., including India, Brazil, Vietnam, and other developing nations in Southeast Asia and Africa.
According to World Bank data, the average U.S. tariff rate on Indian imports in 2022 was 3%, while India imposed a 9.5% tariff on American goods. The European Union could also face higher tariffs due to its VAT policies, potentially affecting key industries such as pharmaceuticals, medical equipment, and automotive exports.
Aaron Klein, a senior fellow at the Brookings Institution, cautioned that imposing reciprocal tariffs in response to VAT policies could spark a trade war.
The reciprocal tariff initiative follows a series of recent trade actions by the Trump administration, including:
According to the Peterson Institute for International Economics, these tariffs could cost the average American household over $1,200 per year, with reciprocal tariffs adding to that burden.
Despite concerns about inflation and trade tensions, U.S. markets rallied following Trump’s announcement. Investors interpreted the lack of immediate action as a sign that tariffs could be used as a negotiation tool rather than an imminent policy shift.
The Dow Jones Industrial Average rose 343 points (0.8%), the Nasdaq gained 1.5%, and the S&P 500 climbed 1%.
“It’s the art of the deal,” said Michael Block, a strategist at Third Seven Capital. “Trump makes bold statements, then pulls back. Markets are learning to read between the lines.”
While investors remain cautious, analysts believe the uncertainty surrounding tariffs could weigh on business investment and delay potential Federal Reserve interest rate cuts.
As the review progresses, global markets will be watching closely to see whether Trump follows through on his tariff threats—or leverages them as a bargaining chip in international trade negotiations.
A Fast-Tracked Timeline for New Tariffs
“They charge us a tax or tariff, and we charge them the exact same,” Trump said before signing the Fair and Reciprocal Plan memorandum in the Oval Office on Thursday.
Trump emphasized that the U.S. would also consider the impact of value-added taxes (VAT) imposed by other countries, which he described as "far more punitive than a tariff."
Targeting India and Other Trade Partners
A White House fact sheet highlighted India’s tariff policies, noting that the country imposes a 100% tariff on U.S. motorcycles while the U.S. charges only 2.4% on Indian motorcycles. Trump suggested India could avoid new tariffs by increasing its manufacturing presence in the United States.
“If you build here, you have no tariffs whatsoever. And I think that’s what’s going to happen,” he said.
The Inflation Factor
“Prices could go up somewhat short term, but prices will also go down,” Trump said, acknowledging potential price increases while maintaining his long-term economic outlook.
Tariffs are typically paid by importers, who pass costs on to retailers and consumers. Critics, including the Wall Street Journal editorial board, have questioned the economic rationale, while Senator Mitch McConnell criticized Trump’s tariff strategy as an unnecessary burden on American families.
Impact on Global Trade and Developing Markets
According to World Bank data, the average U.S. tariff rate on Indian imports in 2022 was 3%, while India imposed a 9.5% tariff on American goods. The European Union could also face higher tariffs due to its VAT policies, potentially affecting key industries such as pharmaceuticals, medical equipment, and automotive exports.
Aaron Klein, a senior fellow at the Brookings Institution, cautioned that imposing reciprocal tariffs in response to VAT policies could spark a trade war.
Escalating Tariff Measures
- A 10% across-the-board tariff implemented last week.
- 25% tariffs on steel and aluminum announced Monday.
- A pending 25% tariff on Mexico and Canada, delayed until March 1.
Wall Street Reacts
The Dow Jones Industrial Average rose 343 points (0.8%), the Nasdaq gained 1.5%, and the S&P 500 climbed 1%.
“It’s the art of the deal,” said Michael Block, a strategist at Third Seven Capital. “Trump makes bold statements, then pulls back. Markets are learning to read between the lines.”
While investors remain cautious, analysts believe the uncertainty surrounding tariffs could weigh on business investment and delay potential Federal Reserve interest rate cuts.
As the review progresses, global markets will be watching closely to see whether Trump follows through on his tariff threats—or leverages them as a bargaining chip in international trade negotiations.