How Trump’s Reciprocal Tariffs Could Backfire on Americastory

What happens when you abandon the trade principles that have guided global commerce for over 75 years? Donald Trump is eager to find out. His proposal to impose “reciprocal” tariffs—matching the duties American exports face abroad, along with additional charges for any policies he deems unfair—threatens to upend a stable, multilateral trade system. Despite its flaws, that system has helped fuel unprecedented global prosperity. In its place, Trump’s approach would inject unpredictability, turning trade policy into a series of ad hoc decisions from the Oval Office.

A System Built on Stability

After World War II, the United States played a leading role in constructing a global trade framework based on fairness and consistency. A key pillar of that system is the most-favored nation (MFN) principle, which requires World Trade Organization (WTO) members to impose the same tariffs on a particular good, regardless of its country of origin—except in cases of deep free-trade agreements, such as NAFTA (now USMCA). This ensures that American firms compete on equal footing with most other foreign businesses in any given market.

MFN also discourages protectionist swings and political favoritism. Since changing tariffs for one trading partner means changing them for all, countries are less likely to engage in tit-for-tat tariff hikes. However, the system does allow for certain asymmetries. Countries can protect key industries as long as their external tariffs remain uniform, and differences in trade policies mean that some nations maintain higher average tariffs than others.

For instance, in 2023, the U.S. levied an average 3.3% tariff—lower than the 5% in the European Union and 3.8% in Britain. Developing countries generally impose even higher tariffs. But that doesn’t make the U.S. a victim. American consumers benefit from lower prices on imports, and American businesses gain from cheaper parts and materials. Over the 20th century, freer trade also contributed to greater global stability.

The Problem with Reciprocity

At first glance, a reciprocal tariff policy might seem like a way to pressure other countries into lowering their barriers in exchange for better access to the U.S. market. In practice, however, it would be complex, arbitrary, and far more likely to escalate trade restrictions than reduce them.

The administrative burden alone would be staggering. Rather than applying a single tariff for each imported good, the U.S. would have to calculate and impose hundreds of different bilateral tariffs, making compliance and enforcement an enormous challenge. This complexity would be especially severe for products with supply chains that cross multiple borders.

The U.S. has attempted reciprocity before—most notably in the late 19th and early 20th centuries—only to abandon it because constant renegotiations made trade unpredictable and inefficient. In 1922, Congress replaced the system with unconditional MFN, recognizing that a stable, uniform approach was far more practical.

An Unpredictable Trade Policy

What makes Trump’s version of reciprocity even riskier is his desire to personally determine whether foreign trade policies are "unfair." His order, for example, takes aim at value-added taxes (VATs), which exist in most developed nations but not in the U.S., where state and local sales taxes serve a similar function. VATs, however, are not discriminatory, as they apply equally to imports and domestic goods.

If VATs were included in Trump’s tariff calculations, the consequences would be severe. According to Goldman Sachs, simply mirroring foreign tariffs would raise average U.S. levies by two percentage points, even without retaliation. Given that many European VAT rates exceed 20%, imposing reciprocal tariffs based on these taxes would result in significant price hikes for U.S. consumers and businesses.

But retaliation is all but certain. If other countries respond in kind, tariffs could spiral upward, pushing businesses to rethink their reliance on international trade. Worse still, given Trump’s arbitrary reasoning on VATs, what other trade grievances might he invent next?

A Dangerous Trade War in the Making

Reciprocity is just one part of Trump’s broader trade agenda. If he follows through on threats to impose 25% duties on select goods, the result would be inevitable: global retaliation and a full-blown trade war. Such an outcome might align with Trump’s economic nationalism, but it would be a serious blow to both the U.S. and global economies.

History has already shown that reciprocal tariffs lead to instability, not prosperity. The lesson remains clear—arbitrary trade policies don’t make America stronger; they make the world poorer.