Trade distortion and protectionism
What’s really unfair in the impact of Trump’s reciprocal tariffs
Published 04 April 2025
President Trump unveiled his long-promised list of sweeping new worldwide reciprocal tariffs in an outdoor ceremony at the White House on April 2. Every single country was assigned a new tariff rate, starting at 10% for all and rising as high as 50% on dozens of nations, with particular damage to smaller, developing economies. This staggering act of self-harm by and to the United States immediately triggered market meltdowns and deep anxiety domestically and across US trade partners.
President Donald Trump promised that April 21 would be an historic event. He called it "Liberation Day" and held a ceremony in the Rose Garden at the White House to reveal the list of targets for increased tariffs on goods from every exporter in the world coming into the United States.
In the end, every single country was assigned a new, higher tariff rate. Starting on April 5, every product from every corner of the globe will be charged an extra 10% in US tariffs. These prices are paid by the importer, not by the exporter, so the impact will hit American businesses and consumers first.
Trump, however, was not done. While most of the world will pay 10% tariffs, about 60 countries were assigned even higher "reciprocal" rates starting April 9. In many circumstances, these new rates are substantial. Many Asian countries, such as Vietnam, Cambodia, and Laos, received total figures of nearly 50%.
These figures are supposed to reflect what the Trump team unilaterally and generally decided as a measure of how "unfair" these other countries in the world have been toward the United States. Trump has said for months that he wants to provide "reciprocal treatment," where the US treats trade partners in the same way that they treat US products. This was supposed to mean that if trade partners charge high tariffs on goods, the US would do the same. The US would throw in extra tariffs for other practices the Trump team deems "unfair," like Value Added Taxes (VAT) or Goods and Services Taxes (GST) imposed within other sovereign nations, use of subsidies, alleged manipulation of currencies, or any non-tariff obstacles that the Trump administration unilaterally purports are designed to keep American goods out of foreign markets.
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What Trump revealed in the Rose Garden, however, did not match his promises. Instead of an actual reciprocal tariff, i.e., matching tariffs abroad with tariffs at home, or a general figure to represent unfair trade practices, the US literally created a formula that divided the size of the bilateral trade balance divided by the total amount of trade. This figure was then divided in half to allow the US to "charge" less than the trading partner. This was supposed to be a gesture of magnanimity from the US.
The Office of the US Trade Representative (USTR) tried to dress this up later by releasing a fancy-looking formula to justify the results. The reciprocal tariff on every country currently includes the 10% baseline.
If the final figure in this calculation of trade ratios did not reach 10, the country was simply placed into the general 10% category.
This crude calculation immediately gave rise to some particularly – and truly, in the sense of the adjective in question – unfair results. The overall list ended up severely punishing smaller economies. For example, the highest reciprocal tariff of 50% was originally assigned to the French territory of Saint Pierre and Miquelon, off the coast of Canada. This island has a tiny population of less than 5,000, which means that imports from the US would never be substantial. In fact, in 2024, the US imported US$3.4 million of mostly fish from it while the inhabitants imported just US$100,000 from the US. Using the US "unfairness" calculation, Saint Pierre and Miquelon scored 99%, which gave it an overall reciprocal tariff rate of 50%.
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Something similar happened to most of Asia. Vietnam, which has a powerhouse export economy, has been running a substantial trade surplus against the US. The formula meant that Vietnam will now receive reciprocal tariffs of 46%, based on US$136.6 billion worth of exported goods divided by US$13.1 billion worth of imports from the US. Cambodia was handed 49%, Laos 48%, Myanmar 44%, Thailand 36%, Indonesia 32%, and Malaysia 24%.
Developed economies were not spared by this formula. South Korea, despite having a free trade agreement with the US in place, got 25%. Japan is facing 24%.
After the Rose Garden ceremony, the reciprocal tariff rates were quickly adjusted. Fifteen countries got an extra 1% added to their reciprocal tariffs, including India, Myanmar, Philippines, South Korea, and Thailand. Saint Pierre and Miquelon, Reunion, and Norfolk Islands were reset to 10%, perhaps following intense public international mocking of the Trump team’s decisions.2
These reciprocal tariffs can end up being higher than they first appear, as some of the previous tariff announcements “stack” on top of one another. China has the biggest problem in this regard. Its reciprocal tariff is 34%, but this has to be added to any existing Section 301 tariffs (often as high as 25%), plus the new 20% tariffs imposed by Trump under the US International Emergency Economic Powers Act (IEEPA), the Trump team’s chosen statutory backing for all its new tariffs – a policy choice itself on shaky legal ground – plus any existing duty charges from anti-dumping and countervailing duty charges. The overall rate could easily rise above 75% on Chinese goods at the US border.
If reciprocal tariffs were not confusing enough, there is also a growing list of sectors with separate Section 232 tariffs in place, including 25% on steel and aluminum and products made with these metals. Separate Section 232 tariffs at 25% went into effect on auto imports this week, with additional 25% tariffs coming on most auto parts within 90 days.
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There are other sectors with planned Section 232 cases including pharmaceuticals, lumber, critical minerals, and semiconductors. For the moment, these products will be excluded from reciprocal tariff payments. However, once the determination is made on the Section 232 tariffs, these hikes will be applied to goods on the sectoral lists. Section 232 tariffs could be higher or lower than reciprocal tariff rates.
The truth is, this entire US policy is not actually about fairness or unfairness in trading partners. There is no judgement attached to this absurd formula. Hence, the 10% tariff now to be borne by Singapore is not a reflection of its trade practices, which include having a free trade agreement with the US in place since 2004, running a surplus in goods trade with the US, applying no tariffs to nearly all Singapore’s trading partners, and otherwise running a free and open economy because its livelihood as an entrepot depends on it. Services and investment flows are not part of the calculation. Singapore was simply caught up in the overall calculation pushed by the Trump White House, which assumes that every country in the world must be doing something unfair to the United States by default.
Given the method of calculation, it is even less clear what might be done to address reciprocal tariffs in the future. Because they are based solely on the 2024 trade balance, no government that tried to negotiate for better terms by offering lower tariffs to the US or accelerated access for American goods received any better outcome than those US trade partners that did not rise to the bait. The White House is suggesting that offers are open for discussion, but retaliation by any of these affected countries should be taken off the table before such discussions. In fact, Section 4(c) of Trump’s Executive Order on reciprocal tariffs notes that any retaliation can be met with unilateral changes in reciprocal tariff figures.
In spite of the uncertainty in application of this wild policy, it is likely that trade partners will try both approaches. Particularly for countries with high levels of dependence on the US market, it may still be worthwhile to see if any deal can be struck to lower rates. Others, like the European Union, which was assessed at 20%, are vowing to retaliate.
Markets are clearly reacting badly to this news. Traders seem to have imagined that most of Trump’s tariff obsession was a bluff or a tactic for making deals rather than an actual policy objective. Others are responding to the sloppy manner in which this entire catastrophic blow to the trading system is being managed, including assigning tariffs based on internet domain addresses rather than a list of actual countries (which is apparently how odd spots, like the Heard and McDonald Islands which are in Antarctica with literally no human residents, got added to the list).
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Trump has built his career on never admitting a mistake or accepting defeat. While he imagined that his "Liberation Day" would be met by cheers in the US – and took pains to stage exactly such a theater in the Rose Garden – the reality has been closer to a stinging rebuke. As these substantial tariffs cascade through the US economy, with an average price hike of 22% on the horizon starting next week, US consumer and business pain will only grow.
This level of systemic shock, on a week in which the United States decisively turned against decades of economic integration in the multilateral trading system that it once led, will lead to new patterns of globalization. Other participants in the system will respond in ways the Trump team likely will not foresee. Global trade is going to be shaken to its foundations for a long time to come.
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[1] https://www.whitehouse.gov/presidential-actions/2025/04/regulating-imports-with-a-reciprocal-tariff-to-rectify-trade-practices-that-contribute-to-large-and-persistent-annual-united-states-goods-trade-deficits/
[2] https://www.washingtonpost.com/business/2025/03/19/trump-tariffs-imports-liberation-day/
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Author
Deborah Elms
Dr. Elms is Head of Trade Policy at the Hinrich Foundation in Singapore. Prior to joining the Foundation, she was the Executive Director and Founder of the Asian Trade Centre (ATC). She was also President of the Asia Business Trade Association (ABTA) and the Board Director of the Asian Trade Centre Foundation (ATCF).
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