Donald Trump unveils plans for reciprocal tariffs, wants a 'level playing field'

(Sharecast News) - Donald Trump has unveiled plans to impose so-called "reciprocal tariffs" on US imports as the president retaliates for what he deems are unfair practices by foreign trade partners. "We want a level playing field," Trump said at a press event in the Oval Office on Thursday as he signed a presidential memorandum instructing federal agencies to study how to match US tariffs to existing levies by other countries.

"They charge us a tax or tariff and we charge them," Trump said.

The memo stopped short of actually imposing any additional duties immediately, in a contrast to what the president had promised earlier in the week. Instead, the reports due by the Commerce Department and the US trade representative are expected to be delivered by April 1.

"Trump's announcement of more tariffs failed to have much of an impact [on markets] since they are delayed until the beginning of April. Investors have been strengthened in their belief that the tough talk on this front is more of a negotiating tactic," said Chris Beauchamp, chief market analyst at IG.

While many have criticised Trump's threats of further protectionist measures since taking office, his argument that importers of US goods apply higher tariffs than the US does on importers is founded in fact, according to analysts at Berenberg.

"As a major proponent of free trade in the past, the US applied an average tariff of 1.5% to incoming goods in 2022. Meanwhile, US exports were subject to a higher average charge of 5.1%," they said.

However, while Trump has been particularly critical of the EU's trade practices, it is thought that reciprocal tariffs will have the biggest impact on emerging markets, which currently have the highest import tariffs. EU countries, for example, have an average tariff of just 1.2% on US goods.

"We see little chance that this will stimulate domestic production in the US: the US cannot quickly replace steel from Brazil or textiles from India and Asia with domestic production if at all. Therefore, this approach would raise inflation, without even a near-term benefit to US growth," Berenberg said.

It is thought that the Trump administration will attempt to mitigate the impact of non-tariff duties used by other nations, such as VAT and government subsidies, that they believe are hampering the flow of US goods.

However, Berenberg analysts said: "This does not make sense - VAT and US local and state sales taxes are charged on both domestic and imported goods, so do not create a home bias.

"Nonetheless, we must take the threat seriously. EU VAT averages 22% and US sales taxes 7%. It is possible the US wants to justify a 15% tariff (the difference between the two) on EU goods on this basis."