Trump Tariffs Erode the Rules-Based Trade Order

The idea of reciprocal tariff invoked by the US is against the provisions of GATT and WTO

- Prabhash Ranjan

The US has launched an assault against the rules-based global trade order by announcing reciprocal tariffs to balance American trade deficits with its trade partners. The announcement, made on Wednesday (April 2), framed as "liberation day," claims to address a "national emergency" caused by a large and persistent trade deficit resulting from a lack of reciprocity in trade relationships.

Under this plan, the US will implement a 10% tariff on all countries starting April 5. Moreover, individualized reciprocal tariff rates will be imposed on countries with whom the US has the largest trade deficits, effective April 9. India, which falls into this latter category, must pay a 27% tariff or more to access the American market, although some products may be exempt from the new tariff rate. This situation is likely to significantly impact India's exports and global trade. Through these announcements, the US is coercing other countries, including India, to lower their tariff rates on American products. While some may succumb to American pressure, others might take retaliatory measures, triggering a full-fledged trade war.

This US announcement can be characterized as an audacious attempt to rewrite global trade rules unilaterally. While reciprocity is a fundamental principle of international trade, its interpretation has changed over time. The Trump administration views reciprocity in a narrow sense, with its fetish on a formal mathematical equivalence between the tariff rates of the US and its trading partners. This approach primarily reflects how trade was organized bilaterally before establishing the multilateral trading system.