Navigating the era of high US tariffs

U.S. President Donald Trump has shocked his trading partners with tariffs that he prefers to call "reciprocal"—though there is nothing reciprocal about them.

- RAJEEV KHER & HARSHA VARDHANA SINGH

These tariffs are calculated by arbitrarily halving the figure obtained by dividing the US trade deficit with a country by US imports from it, defying all reason and logic. The economic interests of smaller economies have suffered more as a result.

These "reciprocal" tariffs have created uncertainty and disruption in world trade, violating established norms and principles of international trade—including the fundamental World Trade Organization (WTO) principles of most-favoured nation (MFN) treatment, national treatment, and the rule that tariffs applied by a country cannot be more than its bound tariffs in the WTO. International trade rules have been turned upside down. This is a major blow to the WTO, at least until the rest of the world finds the courage or coherence to come together and resurrect it from the ensuing debris.

Significantly, the objective of this exercise has been thought through. Trade partners would be under pressure to: (a) negotiate and "mend their ways," as the order includes a possibility of US tariff reduction if "corrective" steps are taken by other nations (Vietnam has already announced its intention of reducing tariffs for the US); (b) refrain from retaliation, as the US could respond by increasing or expanding the scope of the duties imposed; and (c) focus on Annex II of the order, which provides a list of products for which the tariffs would not apply, including, for example, several pharmaceutical products. While this list covers products that may later be subject to safeguard measures, the idea of excluding certain product categories is worthwhile to consider.