The opportunity in the crisis

TARIFFS ARE IMPOSED by countries to protect domestic industry and, to a lesser extent, raise revenue.

- NAJIB SHAH

Protectionism comes at a price—tariffs add to the cost the domestic consumer pays and does not necessarily reduce trade deficits or bring in investments.

The reciprocal tariffs operate on the simple mantra that 'If they charge us, we charge them.' This includes value added tax or goods & services tax and non-tariff barriers. Donald Trump believes that the US trade deficit of over $1 trillion has been accumulated because of the lack of reciprocity. The US, at an average tariff structure of about 3.3 per cent, undoubtedly charges less than most countries and is well within its right to increase tariffs. But reciprocity will violate the well-established Most Favoured Nation (MFN) rule of the World Trade Organization (WTO). The MFN rule, in effect, stipulates that the 166 members of WTO should not discriminate for the same item between nations.