Reciprocal Tariffs
Reciprocal Tariffs
The Trump Administration invoked the International Emergency Economic Powers Act (IEEPA) to substantially increase tariffs on most products from most countries by declaring that the US trade deficit is an economic emergency that must be addressed. The President had three months earlier relied on IEEPA in imposing tariffs against China, Mexico and Canada, to address what he called the national emergency “posed by illegal aliens and drugs, including deadly fentanyl.” As will be discussed in more detail in other sections below, IEEPA empowers the US president to impose a range of remedies to deal with “an unusual and extraordinary threat to the national security, foreign policy, or economy of the United States,” when the threat comes from outside of the United States and the president declares a national emergency.
Although IEEPA has provided the legal justification for decades for a range of executive actions including US foreign sanctions, this is the first time it has been used as the basis for a protective trade measure. The emergency in the case of reciprocal tariffs—also called “liberation day” tariffs by the Trump Administration – is “the large and persistent trade deficit that is driven by the absence of reciprocity in our trade relationships and other harmful policies like currency manipulation and exorbitant value-added taxes (VAT) perpetuated by other countries.” To address this perceived national emergency, President Trump ordered the imposition of 10-percent across-the-board tariffs on all countries, with “an individualized reciprocal higher tariff on the countries with which the United States has the largest trade deficits.” The Trump Administration’s overarching complaint is that US trading partners impose tariffs that are not set at the exact level of US tariffs, so US tariffs must be adjusted accordingly to make up the difference.
While these actions are described as “reciprocal tariffs,” they do not change every tariff rate for every product from every country to mirror US tariffs, as the term implies, which would have required thousands of tariff re-classifications. Instead, the administration divided the US trade deficit with a trading partner by the US imports from that country and then cut that number in half. For example, the US goods trade deficit with Vietnam was $123.5 billion in 2024, which when divided by the $136.6 billion level of US imports from Vietnam equals .904 percent, which when cut in half equals 46 percent, which is the “individualized US reciprocal tariff” set for Vietnam.
The basic idea behind the formula is that trade deficits are bad, need to be erased and are based on unfair trade practices set by other countries. The rules of the World Trade Organization, however, are in many ways the very opposite. Tariff levels are not set based on every country having the same tariff levels on every product on which they trade. Rather, the fundamental underlying principle of the WTO is known as Most Favored Nation, under which countries set their tariff levels in WTO negotiations and then must generally apply those tariffs and other trade measures equally to all members of the WTO without discrimination. The goal is to facilitate tariff reduction and trade, and bring stability and predictability to global markets, not to balance bilateral trade.
Critics of this fundamental principle suggest that the United States should instead apply so-called reciprocal tariffs by giving the President new authority to bring any American trading partner that is currently applying higher nonreciprocal tariffs to the negotiating table. If that trading partner refuses to lower tariffs to US levels, the President then would have the authority to raise US tariffs to match or “mirror” the foreign partner’s tariffs.
While the ”liberation day” tariffs did not follow this approach exactly, they did announce, in no uncertain terms, that the United States would no longer follow the MFN principle. As noted, MFN has been one of the primary principles of global commerce since it was listed as Article 1 of the first General Agreement on Tariff and Trade in 1947. The GATT came in the wake of two devastating world wars and the Great Depression, during which global trade contracted sharply due in part to a global tariff war. MFN and other WTO principles such as “national treatment,” were designed to bring predictability to global commerce following a very unstable period. As explained on the WTO website, “Sometimes, promising not to raise a trade barrier can be as important as lowering one, because the promise gives businesses a clearer view of their future opportunities. With stability and predictability, investment is encouraged, jobs are created and consumers can fully enjoy the benefits of competition — choice and lower prices. The multilateral trading system is an attempt by governments to make the business environment stable and predictable.”
Critics of the so-called reciprocal tariff approach argue that trade deficits are caused by a variety of factors, including the strength of the US dollar, the low US savings rate, the attractiveness of the US market for foreign investors and the spending power of US consumers compared to those of other nations. More fundamentally, they argue, the Trump Administration’s approach will further dilute the role of the WTO, which has already been hampered by the refusal of the United States to permit appointment of individuals to WTO appeals panels, thereby making enforcement of WTO panel decisions all but impossible.
The US Court of International Trade (CIT) has ruled that the broad “reciprocal tariffs” exceed the president’s constitutional authority. Noting that the Constitution assigns Congress the exclusive powers to “lay and collect taxes, duties, imposts and Excises,” and to “regulate Commerce with foreign Nations,” the court concluded that IEEPA does not delegate “these powers to the President in the form of authority to impose unlimited tariffs on goods from nearly every country in the world. We instead read IEEPA’s provisions to impose meaningful limits on any such authority it confers.” The CIT also struck down the “fentanyl” tariffs on statutory grounds, concluding they “fail because they do not deal with the threats set forth in those [executive] orders.” The US Court of Appeals for the Federal Circuit upheld the CIT decision in August 2025.
