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Author: Liu Qichao, Wang Meng, Shen Tao; Source: First Financial Daily
Since taking office on January 20, Trump has actively advocated the golden rule of the United States’ golden age, regarding goods “entering the US market as a privilege, not a right”, and citing that “tariffs can become an effective tool to reduce or eliminate threats that harm US national security and achieve economic and strategic goals.” He cited the International Emergency Economic Powers Act (IEEPA) or Article 232, and wanted to abuse a series of tariff means, attempting to impose so-called “reciprocal tariffs” on global trading partners, including our country, which aroused strong dissatisfaction from the US domestic and international community, triggered significant turmoil in the financial market. Finally, some policies were temporarily suspended for 90 days, and the “reciprocal tariffs” for smartphones, computers, chips and other commodities were even exempted from “retracement”. The policy of changing day and night undoubtedly marked that US tariff blackmail was obviously a naked farce.
Trump’s tariff policy is a unilateral “chaos” of wanton and extreme pressure
First, tariffs are imposed on the grounds of border security and fentanyl control.On this grounds, the United States has clearly imposed a 20% tariff on all Chinese goods imported from the United States; it temporarily enjoys zero tariff treatment for goods imported from Canada and Mexico that meet the preferential conditions of the United States-Mexico-Canada Agreement (USMCA) and imposes a 25% tariff on goods that do not meet the preferential conditions of the USMCA, and imposes a 10% tariff on energy and potassium fertilizers that do not meet the preferential conditions of the USMCA.
Second, tariffs are imposed on specific industries or commodities.The United States has clearly imposed a 25% tariff on steel, aluminum and derivatives, an 25% tariff on imported passenger cars and light trucks (the import of relevant vehicles that meet the applicable conditions of the USMCA from Canada and Mexico is allowed to deduct US components), and an 25% tariff on certain auto parts starting from May 3.At the same time, it has successively announced the launch of 232 investigations on “copper, scrap copper and derivatives”, “wood, wood and derivatives”, “semiconductor and semiconductor equipment”, “drugs, finished pharmaceuticals and derivatives”, and “processing of key minerals and derivatives”, and subsequently, tariffs on agricultural products may be imposed.
The third is to implement “reciprocal tariffs” measures on a large scale.On April 2, the United States announced that it would impose special “reciprocal tariffs” of 11% to 50% different (equality tariffs) on 57 countries (regions) including China (34%) and the EU (20%) (implemented from April 9), and a 10% benchmark “reciprocal tariff” on all other trading partners (implemented from April 5); on April 8, it announced that the “reciprocal tariffs” on China would be increased to 84% (implemented from April 9); on April 9, it announced that from April 10, the “reciprocal tariffs” on China would be increased to 125% again, and other countries (regions) that impose special “reciprocal tariffs” except China would be temporarily imposed at 10% within 90 days (to July 9).
Fourth, use secondary tariffs as a means to crack down on and isolate opponents.On March 24, the United States announced an additional 25% sub-tariff on imported goods from all countries (regions) that import Venezuelan oil and natural gas. The policy was originally scheduled to be implemented on April 2, but it has not been implemented as of April 20.
Trump’s tariff policy is a synthetic fallacy filled with loophole assumptions and false visions
First, the absurd measurement of “equivalent tariffs” is neither logical nor “equivalent”.In the explanatory document on the calculation of “peer-to-peer tariffs”, the Office of the United States Trade Representative clearly stated that the additional tariff rate imposed on country i is △τi=(xi-mi)/(ε×φ×mi), and the “peer-to-peer tariff” rate is a larger value of one-half and 10% of the additional tariff rate.Among them, the parameters ε and φ represent the elasticity of tariffs to domestic prices and import demand respectively. The US sets its values to 4 and 0.25 respectively, which offset each other by coincidence.This makes the so-called “reciprocal tariff” rate completely dependent on the proportion of the US trade deficit (xi-mi) with a specific country to the total U.S. imports from that country (mi) does not really reflect the “tax or non-tariff factors that lead to the trade deficit” that the Trump administration repeatedly emphasizes that “reciprocal tariffs” are intended to offset.
For example, Mauritius’s trade-weighted average tariff rate is only 1.3%, but it faces “reciprocal tariffs” of up to 40%. Brazil has always been regarded by the White House as a country with relatively high trade barriers, but it has been leveraged by a 10% benchmark “reciprocal tariff” due to its trade surplus with the United States.This series of inconsistent rhetoric undoubtedly shows that the design of the US “reciprocal tariff” policy is purely a “economic witchcraft” fabricated out of thin air for the purpose of political purposes.
Second, the perverse logic of persuasiveness violates the basic principles of the World Trade Organization and the basic principles of taxation of consumption.”Reciprocal tariffs” seriously violate the most basic and core rules such as WTO’s most-favored-nation (MFN) treatment, non-discrimination, and binding tariffs. It is the legitimate rights and interests of all WTO members to independently adjust the applicable tariff rates under the promised binding tariffs based on the principle of reciprocity.
The United States unilaterally emphasized that according to WTO statistics, the simple average MFN tariff rates of Brazil (11.2%), the European Union (5%), India (17%) and Vietnam (9.4%) are all higher than that of the United States by 3.3%. The pursuit of so-called numerical reciprocity under bilateral trade is purely hegemonic logic.According to WTO’s calculations, the implementation of the “reciprocal tariff” plan will reduce the proportion of trade under the WTO MFN treatment framework from 80% at the beginning of 2025 to 74%, which will seriously impact the international economic and trade order and shake the foundation of the multilateral trading system.
At the same time, VAT has never been a non-tariff barrier claimed by the United States.According to statistics from the International Bureau of Finance and Literature, 175 countries (regions) around the world have imposed value-added tax (VAT) or goods and services tax (GST).From the principle of the tax system, these countries (regions) generally collect VAT in the import process and refund VAT in the export process. VAT can be deducted in the subsequent transaction chain of imported goods. The tax burden is transferred to the downstream layer by layer and ultimately borne by the consumers. The importer is only the tax deduction (collecting) payer rather than the actual tax burden. Exporters also do not bear the VAT tax burden due to tax refunds.Due to differences in tax systems, the United States also imposes sales tax at the state and municipal levels, and directly collects it from consumers at the end of the transaction chain. Importers naturally do not need to pay, and exporters also do not bear the tax burden.Under the consumption tax system, the scope and applicable tax rates of imported goods and domestic goods comply with VAT, GST and sales tax in any country (region) are completely consistent, and there is no “discrimination”.
Third, the policy pursuit of reducing the trade deficit is neither scientific nor sufficient to reverse the existing trade deficit.From the perspective of realistic representation, bilateral trade imbalance is an inevitable result of the structural problems of the US economy, and is also determined by the comparative advantages of various countries and the international division of labor pattern. The imposition of tariffs cannot repair the errors in the statistical caliber, nor can it fundamentally solve the trade deficit.
Overall, the imports of the United States are mainly industrially manufactured products such as computer electronic products, transportation equipment, chemicals, machinery and equipment, daily necessities, and exports are mainly high-tech products, industrial intermediates and resource-based commodities. The current trade statistics method for goods is to calculate the exports of various countries based on the total trade value (the full amount of goods exported by each country to the United States). If calculated by the trade value-added method, the U.S. foreign deficit data will drop significantly.
At the same time, according to statistics from the U.S. Department of Commerce Bureau of Economic Analysis (BEA), the tariff war since 2018 has not reduced the overall trade deficit in the United States, but has only prompted the trade deficit to be redistributed among trading partners.Of course, the calculation of “reciprocal tariffs” itself has flaws, and the US side deliberately ignores the revenue from service trade.EU Economic Affairs Commissioner Dongbrovskis said on April 11: “The United States maintains an overall balanced trade relationship with us, but if we subdivided the categories, we will find that there is a large deficit in commodity trade, while there is a large surplus in service trade.” According to BEA statistics, the surplus in international service trade in the United States in 2024 reached US$293.33 billion, accounting for 24.2% of the deficit of US$1211.747 billion in goods trade in the same year. Such clever words reveal the essence of tariff blackmail.
Fourth, it intends to raise funds for domestic tax cuts through high tariffs built on “small courtyards and high walls”.Faced with the upcoming economic backlash, the Republican Party of the United States has tried to package the domestic tax cut policy of up to $5.3 trillion that is being designed as “an economic antidote after the tariff shock.”However, from the perspective of the modern tax system, the fiscal revenue raising function of tariffs has obvious flaws, which is far inferior to core taxes such as income tax and value-added tax.
Take the United States as an example. In fiscal year 2024, the U.S. federal revenue was $4.92 trillion, of which $2.43 trillion in personal income tax and $0.53 trillion in corporate income tax, accounting for 60.1% of total federal revenue, while tariff revenue accounted for only 1.6% ($0.08 trillion).According to the US think tank Tax Foundation, under dynamic calculations (not considering tit-for-tat revenge), a comprehensive imposition of 10% tariffs can raise US$1.72 trillion from 2025 to 2034, and a comprehensive imposition of 20% tariffs can raise US$2.56 trillion.
Judging from the actual collection, data from the U.S. Customs and Border Protection Agency shows that since April 5, the cumulative increase in the “reciprocal tariff” policy has been only US$500 million. Since January 20, the average daily tariff revenue collected by 15 trade actions is only US$250 million, which is far from the $2 billion claimed by Trump’s chief trade adviser Peter Navarro.Considering the major spillover effects of high tariffs and the uncertainty of the international economic and trade situation, the source of the tax reduction income gap based on theoretical calculations may also require “other parties”.
Trump’s tariff policy is purely a government breach of trust and economic self-harm.
First, the differences between the two parties in the United States and the game within the Republican Party have caused the long-term implementation of tariff policies to face huge political pressure.The Democrats criticized Trump’s tariff policy as a “reckless move” and are raising funds for the self-proclaimed tax cut bill at the cost of bringing the United States back to the Great Depression.As the tariff war accelerates, more and more opposition voices have emerged within the Republican Party.Senator Rand Paul, a Republican of Kentucky, strongly criticized the US federal government for imposing tariffs on the grounds that the trade deficit constitutes a “national emergency.” He stressed that Congress must re-exercise the tariffs and foreign trade supervision powers granted by the Constitution.Ted Cruz, a Republican of Texas, said the tariffs are essentially taxing consumers, and he does not agree with a substantial increase in taxes on American consumers.On April 3, Senate Interim Speaker Chuck Grassley and Democratic Senator Maria Cantwell jointly proposed the 2025 Trade Review Act, which restricted the president’s unilateral tariff power without Congress’ approval, has received support from at least seven senators, causing more complex political struggles.
Second, tariff policies will push up inflationary pressure in the United States and ultimately make American consumers “pay”.Federal Reserve Chairman Powell said on April 16 that Trump’s tariff policy is “very likely” to stimulate inflation to rise temporarily and may last for a long time, and a slowdown in economic growth may also be coming.
Several independent studies have shown that the actual cost of tariffs during Trump’s first term is ultimately transmitted to American businesses and families through the prices of imported goods.The American Retail Federation said record high tariffs are threatening the “American Dream” of small businesses that make up 98% of the retailers, providing more than 13 million jobs.
The forecast data released by the Yale University Budget Laboratory on April 15 showed that all relevant tax measures in 2025 will increase the price level of each commodity by 3% in the short term, and the prices of commodities such as clothing, textiles, food, fresh agricultural products, automobiles, etc. will face greater pressure on rising prices, which will increase the average annual expenditure costs of low, medium and high-income households in the United States by $2,200, $3,800 and $10,500 respectively.
Third, tariff blackmail and policies have repeatedly exceeded market expectations and caused a huge shock in the financial market.Financial institutions such as Goldman Sachs, UBS, and Citi have lowered their expectations for the US economic growth, significantly raising the probability of US economic recession, and the global financial market has experienced repeated shocks.
Since the announcement of the “peer-to-peer tariff” plan on April 2, the Nasdaq Index and the S&P 500 Index fell into a technical bear market on April 4 and 7. On April 9, the United States announced the suspension of the implementation of special “peer-to-peer tariffs” for 90 days. The three major U.S. stock indexes collectively rose, which triggered strong doubts among Democrats about Trump and his Republican members using tariff policies to carry out market manipulation and insider trading.
Since the beginning of the US tariff war on February 4, the US dollar has continued to weaken, with the US dollar index falling from 108.4 on February 4 to 99.4 on April 18; the US bond market encountered a wave of selling, and the 10-year US bond yield, known as the “anchor of global asset pricing”, hit its largest single-week increase in more than 20 years after the implementation of “reciprocal tariffs”. Within the five trading days on April 11, the yield rose by 50 basis points to 4.49%.This rare triple-killing situation of stocks, foreign exchange and debt is the true manifestation of the global investors’ trust crisis in US dollar assets.
Fourth, high tariffs will distort the allocation of global market resources and further weaken the US industrial base.Tariffs, as a policy leverage, have a wide range of consequences and are often unexpected.The WTO estimates that if the United States continues to implement “reciprocal tariffs”, which is superimposed by the uncertainty of various trade policies, it will cause a 1.5% drop in global commodity trade volume in 2025 in serious cases.
From a deeper perspective, high tariffs are difficult to achieve Trump’s political commitments.For example, tariffs will be transmitted step by step through the industrial chain and supply chain, expanding the import competition industry, and absorbing resources such as labor, capital and land from other industries (including export industries), aggravating the risks of supply chain breakage and industrial hollowing out, and increasing the difficulty of developing manufacturing in the United States.
For example, although tariffs have the effect of production subsidy, their targets are domestic production capacity rather than jobs.Taking the semiconductor industry as an example, the investment in new wafer fabs can reach US$20 billion, but the jobs directly created are mainly concentrated in the high-end engineer group, and the demand for ordinary blue-collar workers is minimal, which is very different from Trump’s political commitment to “Rust Belt Revival”.
From a historical narrative perspective, the three trade wars of McKinley Tariffs (1890), Dingley Tariffs (1897) and Smurt-Holly Tariffs (1930) initiated by the United States to the world since 1890 all ended in failure.This time, the United States attempts to use tariffs as a weapon to implement extreme pressure and make personal gain, subvert the existing international trade order, and serve “America first” at the expense of the legitimate interests of countries around the world, which will eventually backfire itself, and “making the United States great again” is tantamount.
(Liu Qichao is a researcher at the International Taxation Research Center of Central University of Finance and Economics, Wang Meng is an assistant researcher at the Finance and Taxation Law Research Center of China University of Political Science and Law, and Shen Tao is a doctoral student at the School of International Law, East China University of Political Science and Law)
