By Beiyi Seow, AFP
Donald Trump acknowledges US prices "could go up" due to tariffs, but he expressed confidence that they would ultimately ease. Photo: AFP
US President Donald Trump inked plans on Thursday for sweeping "reciprocal tariffs" hitting both allies and competitors, in a dramatic escalation of an international trade war that economists warn could fuel inflation at home.
Speaking in the Oval Office, Trump said he had decided to impose the reciprocal duties, telling reporters that US allies were often "worse than our enemies" on trade issues.
The levies would be tailored to each US trading partner and consider non-tariff factors including value-added tax (VAT).
"Major exporting nations of the world attack our markets with punishing tariffs and even more punishing non-tariff barriers," Trump trade advisor Peter Navarro told reporters, taking aim at the European Union in particular over VAT.
Washington will start by examining economies with which the United States has its biggest deficits or "most egregious issues," said a White House official.
"This should be a matter of weeks, in a few months, but not much longer than that," the official added, speaking on condition of anonymity.
Trump acknowledged on Thursday that US prices "could go up" due to tariffs, but he expressed confidence that they would ultimately ease.
Trump has announced a broad range of tariffs targeting some of the biggest US trading partners since taking office, arguing that they would help tackle unfair practices and in some cases using the threats to influence policy.
The president has referred to tariffs as a way to raise revenue, remedy trade imbalances and pressure countries to act on US concerns.
The White House official said on Thursday that the United States has been "treated unfairly," saying a lack of reciprocity was a reason behind the country's "persistent annual trade deficit in goods."
With the memo Trump signed on Thursday, the US Trade Representative, commerce secretary and other officials will work to propose remedies on a country-by-country basis.
Trump's announcement came hours before he was due to meet Indian Prime Minister Narendra Modi in Washington.
Analysts have warned that reciprocal duties could bring a broad tariff hike to emerging market economies such as India and Thailand, which tend to have higher effective tariff rates on US products.
Countries such as South Korea that have trade deals with Washington are less at risk from this move, analysts believe.
Inflation concerns
Cost-of-living pressures were a key issue in the November election that saw Trump sweep to power, and the Republican has promised to swiftly reduce prices.
But economists caution that sweeping tariffs on US imports would likely boost inflation, not reduce it, in the near term and could weigh on growth eventually.
Trump's deputy chief of staff for policy Stephen Miller previously said countries use the VAT to get an unfair trade advantage, although analysts have challenged this characterisation.
During election campaigning, Trump promised: "An eye for an eye, a tariff for a tariff, same exact amount."
For example, if India imposes a 25 percent tariff on US cars, Washington will have a 25 percent tariff as well on imports of autos from India, explained a Nomura report this week.
The consideration of non-tariff factors might shift this calculus.
Modi will hold talks with Trump on Thursday and New Delhi offered some quick tariff concessions ahead of his visit, including on high-end motorcycles.
"Trump's objective of implementing reciprocal tariffs is to ensure fair treatment for US exports, which could indirectly also address US trade imbalances with partner countries," analysts at Nomura said.
Among Asian economies, India has a 9.5 percent weighted average effective tariff on US exports, while there is a three percent rate on India's exports to the United States.
Thailand has a 6.2 percent rate and China a 7.1 percent rate on US products, Nomura noted.
Higher tariffs are often imposed by poorer countries, who use them as a tool for revenue and protection because they have fewer resources to impose non-tariff barriers, Cato Institute's Scott Lincicome earlier told AFP.
-AFP
