Reciprocal Tariff Policies
A tax or trade restriction imposed by one nation on another in retaliation for comparable actions by that nation is known as a reciprocal tariff. Equilibrium commerce between countries is the goal of reciprocal tariffs. In response to a country’s increase in tariffs on goods from another, the affected nation may impose its duties on imports from the first nation. Fixing trade imbalances, protecting local companies, and maintaining jobs are the goals of this response.
Trade barriers may rise back and forth as a result of reciprocal tariffs, thereby sparking a trade war that hurts both economies. These circumstances could hinder economic growth, boost consumer prices, and upset supply chains.
Historical background or the evolution of US trade policies
Clashing Over Commerce, which separates the history of US commerce into three time periods: reciprocity, revenue, and limitation. These three periods’ primary goals were to increase income, limit imports to shield home firms from outside competition, and open domestic markets to international trade through reciprocity.
Revenue raising
The primary goal of trade policies during the colonial era and the early post-independence period was to raise money for the government.
Various charges were imposed on imports under the first U.S. tariff policy (1789), which led to discussions about whether tariffs should also safeguard domestic industry.
The “Protectionist” Tariff of 1816, which favoured Northern industry over Southern agricultural interests, was the result of this.
Restricting imports to protect domestic industries
In order to preserve native producers, strong protective tariffs predominated after the Civil War. Although they had a variety of effects, including contentious discussions on their potential to worsen the Great Depression, policies such as the Hawley-Smoot Tariff (1930) increased import duties.
Over time, protective tariffs decreased competitiveness by creating inefficiencies, such as inflated wages in industries like steel, even while they increased earnings for American businesses.
Protection through reciprocal agreements
With agreements like the Reciprocal Trade Agreement Act (1934), policy started to progressively shift towards lowering trade barriers in the 1930s. To safeguard faltering domestic industries, the United States did, however, continue to impose some trade restrictions, particularly during recessions.
The main focus is on how political and economic changes, U.S. trade policy has changed to strike a balance between protecting domestic industries, meeting revenue demands, and integrating into the global economy.
President Donald J Trump’s announcement of reciprocal tariffs
In a move that might lead to a devastating trade war, U.S. President Donald Trump announced a series of punitive tariffs on April 2, 2025, aimed at nations worldwide, including some of its closest trading allies.
Some of Donald Trump’s harshest tariffs were on what he called “nations that treat us badly.” These included 34% on goods from China, 26% on goods from India, 20% on goods from the European Union, and 24% on goods from Japan.
Trump declared that he will apply a 10% baseline tariff. He has been hinting at the move for weeks, claiming that tariffs will prevent other nations from ripping off the United States and promote a new Golden Age of American business.
However, a number of analysts caution that the tariffs run the risk of starting a destructive trade war overseas and a recession at home if prices are passed on to American consumers. U.S. trading partners, meanwhile, have promised prompt retaliation and are attempting to convince Mr. Trump to make agreements to avoid tariffs altogether.
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Although Trump has stated that he is seeking other countries to lower their import tariffs and remove any non-tariff barriers that the administration claims have hampered US exports, he has made no public signals that he intends to abolish his baseline 10% tariff.
US-China trade war and its impact on global economies
With the Chinese government promising reprisal, the Trump administration raised tariffs on China by 10% on February 1, 2025, and then raised the total import duty on China to 54% on April 2, 2025.
The trade battle that President Trump started with China during his first term was intensified just two months into his second term. The Trump administration raised tariffs on China by 10% on February 1, 2025, and raised the overall imposition of import duties on China to 54% on April 2, 2025. Trump issued the most comprehensive tariff increase on all U.S. trading partners in April, following a series of tariff exchanges.
Following a sharp decline in world markets, Trump imposes a 90-day halt on all nations except China, which sets off yet another round of tariff retaliation from both nations. In addition to a 15 percent tariff on U.S. energy, a 10 percent tariff on crude oil and agricultural machinery, and a 10 to 15 percent tariff on U.S. agricultural items, as of April 11, U.S. tariffs on all Chinese commodities are at 145 percent, while Chinese duties on all U.S. goods are at 125 percent.
The IMF estimates that a 10% universal increase in U.S. tariffs, coupled with retaliation from China and the Euro area, could lower global GDP by about 0.5% and the U.S. GDP by 1% by 2026. A negative sentiment shock associated with increased trade policy uncertainty is responsible for around half of the GDP drop caused by higher tariffs.
The other economies may be significantly impacted by these reciprocal tariffs. According to the
International Monetary Fund, the US and China together control a significant portion of the world economy—roughly 43% this year. They would probably hurt other nations’ economies by slowing global growth if they started a full-scale trade war that reduced their growth or even sent them into a recession. International investment would probably suffer as well.
The largest manufacturing nation in the world, China, produces significantly more than its citizens consume at home. It is currently exporting more goods to the rest of the globe than it is importing, resulting in an over $1 trillion commodities surplus. Additionally, it frequently produces those commodities at a lower cost of production because of domestic subsidies and state financial assistance, such as low-interest loans, for preferred businesses.
There’s a chance that Chinese companies would try to dump these goods overseas if they can’t get into the US. Some consumers would benefit from that, but manufacturers in nations where employment and wages are at risk could be undercut. The majority of economists believe that a full-scale trade war between the US and China would have extremely detrimental effects that would be felt around the world.
Nonetheless, Donald Trump stated at a White House press conference that hefty tariffs on Chinese imports will significantly decrease, while they won’t be eliminated.
Trump’s comments followed Treasury Secretary Scott Bessent’s previous statements on Tuesday, in which he stated that he expects the trade war between the two biggest economies in the world to de-escalate and that the high tariffs were unsustainable.
Impact of reciprocal tariffs on US-Europe trade relationship
It is obvious that the international rules-based trading system is being threatened by President Donald Trump’s tariffs. Although it is considerably less obvious how Trump’s tariffs will affect the EU’s economy, evidence of potential macroeconomic repercussions indicates that they could be substantial but controllable.
Compared to the US, the EU would probably experience a far smaller impact on trade. If an agreement is not achieved, US exports to the EU may plummet by 8 to 66 percent, while EU exports to the US could reduce by 0.6 to 1.1 percent.
The US would be more affected than the EU, mostly due to the US’s reliance on imports of final-consumption goods and inputs for US manufacturing, but the impact on GDP would probably be minimal. With all but one scenario forecasting a reduction between zero and 0.5 percent of GDP for the EU, the US GDP might fall by 0.7 percent, and the EU GDP may contract by 0.3 percent in a no-deal situation. For the US, the range of estimates is much wider, particularly in cases where retaliation occurs.
Ursula von der Leyen, president of the European Commission, called U.S. President Donald Trump’s worldwide tariffs– a serious setback to the global economy. She stated that the EU was ready to take countermeasures if negotiations with Washington broke down.
In response to U.S. steel and aluminium tariffs that went into effect on March 12, Von der Leyen stated that the EU was already finalising a first package of duties on up to 26 billion euros of U.S. imports for mid-April. In the event that talks break down, the European Union is getting ready for additional countermeasures to safeguard its interests and companies.
Divergent views exist among EU members regarding the appropriate course of action. French President Emmanuel Macron has proposed that European businesses halt their investments in the United States until the situation is resolved, while France has stated that the EU should develop a package that goes well beyond tariffs. Italy, the EU’s third-largest exporter to the US, on the other hand, has questioned whether the EU should retaliate at all, and Ireland, whose exports to the US account for about a third of total exports, has called for a thoughtful and calibrated reaction.
In reaction to 25% US tariffs earlier this year on 26 billion euros’ worth of European steel and aluminium imports, the EU authorised its first round of retaliatory tariffs on the US on April 9. 26 EU member states unanimously agreed to the European Commission’s proposal to apply retaliatory tariffs on around 21 billion euros worth of American goods, except for Hungary, which has always been an outlier. Unity among member states, which has held up thus far but is still brittle given the economic interests of various industries and nations and their differing exposures to US trade, will play a significant role in determining the EU’s response.
India-US trade relationship
The strategic alliance between the United States and India is based on common ideals, such as a dedication to democracy and respect for the rules-based international order. Through connectivity, commerce, and investment, the US and India have a common interest in advancing international security, stability, and economic development.
The total bilateral commerce in products and services between the United States and India hit a record
$157 billion in 2021. India’s biggest export market and commercial partner is the United States. Over 70,000 American employment was supported by $12.7 billion in Indian investment in the US. Every year, the approximately 200,000 Indian students studying in the US add $7.7 billion to the American economy.
On April 3, US President Donald Trump dealt a severe blow to the international trading system by enacting reciprocal tariffs on nations worldwide, which sparked a trade war and sent markets plunging all over the world. Trump used his “emergency powers” to slap 10% tariffs on all countries starting on April 5 and specific tariffs on a few countries starting on April 9. India, a vital ally of the United States, will see a 27% increase in tariffs.
According to a White House statement, India charges 70% on passenger car imports, while the US charges 2.5%. While rice attracts 2.7% in the U.S., it draws 80% in India. Apples are permitted to enter the U.S. duty-free, but India charges a 50% duty on U.S. apples entering India. The United States and India have a $46 billion trade deficit.
Impact of tariffs on different sectors
The car industry is at risk, especially those that export auto parts to US producers like Tesla, Ford, and General Motors. Over half of the revenue generated by several Indian manufacturers who supply vehicle parts to GM, Ford, and Tesla comes from exports.
India is the world’s third-largest producer of drugs and pharmaceuticals, and it exports to around 200 nations, with the US being its top destination. Trump’s reciprocal tariffs, however, have a startling effect on India’s pharmaceutical industry, which contributes significantly to the country’s trade surplus with the US. This declaration was made at a time when India was growing its “Pharmacy of the World“ home business. Because of reciprocal tariffs, this industry is currently at a pivotal point.
Thirteen percent of India’s exports to the United States are electronics. The impact is significant but constrained if 10–50% of this sector’s exports are impacted, and more than 50–60% of that percentage experiences cost increases linked to tariffs. India’s export commerce will not be significantly damaged by the tax, although it touched a few sectors. To reduce losses and open up new markets, India is negotiating a trade agreement with the United States to lower tariffs on $23 billion worth of imports. Despite their importance, exports to the United States only make up a modest portion of worldwide exports. Textiles might profit, pharmaceuticals are unaffected, and India’s reduced tariffs make it more competitive with China and Vietnam.
Analysis
American trade policies have never been static. The United States has a long history of shifting between market reciprocity, protectionism, and income generation in its trade policies. The recently implemented tariffs, however, transcend the predecessor policies because of their sharp return to hardline economic nationalism.
Trump’s rise in tariffs runs the risk of igniting a prolonged trade war, especially against China, India, and the EU. As the supply networks have been disrupted, production prices are on the rise, providing ample reasons for the global economic development to slow down due to retaliatory tariffs.
Since the United States is the largest market for Chinese exports, high tariffs imposed by the U.S. may push China to redirect its excess exports to other markets, potentially leading to oversupply and disrupting regional businesses globally.
In India’s context, while the largest and oldest democracies aim to reduce implications, the former’s key industries like electronics, cars, and pharmaceuticals are at risk from higher tariffs.
Furthermore, as heavy tariffs weigh on economies like South Africa and Lesotho, the resulting economic strain exacerbates instability in an already war-torn Africa. Meanwhile, the European Union finds itself at an impasse, torn between imposing strategic penalties and safeguarding its economic interests. This dilemma threatens the global economic fabric, unfolding instability across multiple fronts.
This economic alteration to the traditional norms of trade between the large, medium and small economies highlights the delicate balance between global interconnectedness and economic protectionism. While Trump’s measures might be intended to protect American industry, they are surely causing financial market instability and disrupting diplomatic ties. This chessboard game of tariffs underlines how trade wars impact geopolitical alignments and strategic alliances globally, going beyond financial considerations.
About the author …
Kazey Farooq is an academic writer with a Master’s in International Relations, specializing in Peace and Conflict Studies. With expertise in diplomacy, foreign policy, conflict resolution, and international law, she is dedicated to advancing global peace initiatives and policy formulation. Kazey combines analytical thinking, comprehensive research, and effective communication to support peacebuilding efforts. Her work bridges theory and practice to address global challenges, promoting sustainable solutions for conflict resolution and diplomacy. Through scholarly contributions and policy-oriented research, she strives to foster international cooperation and ensure impactful strategies for global stability.
