“Reciprocal” Tariffs: What Are They Really For?

Claiming they would offset unfair foreign trade practices that cause chronic US trade deficits, President Donald Trump announced “reciprocal” tariffs on countries with large bilateral trade surpluses with the United States, adjusting them most recently on August 1, 2025. But the administration’s use of bilateral US trade deficits as a proxy for unfair foreign trade practices is wrong because imbalances also reflect other causes of trade, such as factor endowments, technological differences, and the impact of US preferential programs. The administration overestimated the tariffs required to eliminate bilateral imbalances. It applied the same formula to all economies, ignoring different responses to tariffs when products and supply conditions vary. It assumed that only a quarter of the tariffs will be passed through into final US prices and neglected the overwhelming evidence that the pass-through rate is usually between 50 and 100 percent. It ignored global value chains and modelled imports as fully produced in the country from which they are finally shipped, but when imported products contain intermediate inputs from third countries, this can seriously understate the penalty the tariffs impose on the exporting countries. Viewing all bilateral US deficits as unfair, the administration has threatened all targeted US trading partners with high tariffs, but the deficits are concentrated in only a few countries. As a result, with widespread application, many economies would suffer harm with little impact on the United States. US trade with all 19 targeted African countries, for example, accounts for just 1.5 percent of all bilateral deficits targeted. Given these flaws, it is not surprising that the administration has shifted from claiming the tariffs are essential for reciprocity and now plans to raise tariffs on smaller targeted trading partners by similar amounts without regard for their surpluses. The estimates that do use the formula have been used as a threat to persuade countries with larger surpluses to agree to tariffs that remain high— typically around 15 percent. These tariffs will inflict considerable economic damage and unless US spending relative to income declines, they will do little to reduce America’s overall trade deficits.