Washington, United States:
US President Donald Trump has threatened to open new fronts in his rates war by announcing mutual levies to other countries as soon as Tuesday, burning this “the only honest way” to act.
Trump's fresh salvo could bring a broad rate increase for emerging market economies such as India and focusing on added value with the European Union, Wanktensmen with the Block, warn analysts.
What are mutual rates?
Rates are taxed on goods imported from another country.
Regarding mutual rates – during the election campaign, Trump promised: “An eye for an eye, a rate for a rate, the same exactly amount.”
And on Sunday he said that he would make a detailed announcement about the rates on Tuesday or Wednesday, adding that “every country will be mutual.”
An approach is to increase rates on the import to match the rate that other countries apply to American products, according to Goldman Sachs analysts in a note.
When matching this based on different products, the average rate percentage of the United States would increase by around two percentage points. If you do this to match the average rate imposed by countries, the US rate will be increased by a smaller amount.
But following a product -oriented approach has complexities.
Although Washington has relatively low average rates with a percentage of 2.7 percent in 2022, higher rates in “very politically sensitive” areas such as clothing, sugar and pick-up trucks, said Cato Institute Vice president of General Economic Scott Lincicome .
Similarly, the recording of non-tariff barriers such as regulations in the calculus would contribute to complications.
Who is being hit?
Mutual rates can open the door for “a broad rate increase” on emerging market economies that have high tasks on American products, JPMorgan analysts expect.
If civil servants have average rates on all products, countries such as India or Thailand – which tax imports do at higher average rates than the United States – can be influenced.
Trump previously beat India as a “very large abuser” about trade and this week the national director of the Economic Council Kevin Hassett told CNBC that India had high rates that hold the import.
Lincicome warned that high rates are often also imposed by poorer countries, which they use as a tool for income and protection, because they have fewer means to impose non-tariff barriers such as the protectionism of regulations.
Goldman Sachs estimates that “there should be no effect on countries with free trade agreements such as Mexico, Canada and Korea, which limits the overall impact” if Washington would follow a national approach to mutual rates.
What are the complications?
It remains unclear whether Trump regards the policy of mutual rates as an alternative to a universal rate of 10-20 percent that he was driving or a separate policy on the campaign track.
A risk is that the Trump administration “could try to equalize non-tariff barriers to trade,” said Goldman Sachs in a note. In particular, he was able to take into account taxes with added value (vessels) when deciding how much he should adjust the rates.
This is to increase the average effective rate percentage by another 10 percentage points, Goldman analysts added.
Such a step can also be a reaction to barrels with a high European Union, JPMorgan said.
What is the goal?
“One of the objectives is to create uncertainty as a negotiating tactics, but uncertainty is a tax on doing business,” Jeffrey Schott, Senior Fellow at the Peterson Institute for International Economics, told AFP.
Unpredictability around rates, retribution and non-trade issues all contribute to a situation that weighs over American and foreign companies, he said.
In the case of allies such as Europe, Schott said, the American objectives in negotiations can entail 'economic and geopolitical priorities, including Ukraine'.
They can include finding a better solution to the situation in Ukraine, which has been fighting a Russian invasion since 2022, but also to expand American exports in important sectors such as LNG.
Two-Way Street?
However, the United States does not have the lowest rates in the world and are around the middle when it comes to rich, industrialized countries, said Cato's Lincicome.
“If Trump's system is based on average rates, 'real' reciprocity would require the American rating rate on goods from dozens of countries,” he added in a recent report.
(This story was not edited by Our staff and is automatically generated from a syndicated feed.)
