More than a dozen countries, including India, set for US reciprocal tariffs may face slightly higher levies than they first expected. A White House annex listing future reciprocal tariff rates differed for at least 14 economies from what was on the charts presented when President Donald Trump announced his “Liberation Day” tariffs in the Rose Garden, according to a Bloomberg review of published data.
In each case, they were higher by exactly one percentage point. White House officials are yet to comment on it.
In the annex document, India’s rate was listed at 27%, rather than the 26% shown previously. South Korea was at 26%, instead of 25%. Others with differing rates included Botswana, Cameroon, Malawi, Nicaragua, Norway, Pakistan, the Philippines, Serbia, South Africa, Thailand, Vanuatu, and the Falkland Islands.
ALSO READ: Trump’s tariff bombshell hits India, but some desi sectors dodge the shrapnel
This is important because, under the executive order implementing Trump’s reciprocal tariff policy, all US trading partners start at a global 10% tariff from April 5. Four days later, those listed in the annex — and only those in the annex — would have their rates elevated to those set out in that document, said Bloomberg.
Moreover, some overseas territories and possessions of larger countries — originally listed in the White House’s charts with tariff lines different from their parent nations — don’t appear at all in the annex.
ALSO READ: Trump's 26% tariffs put pressure on India. Is New Delhi ready for the impact?
Reunion, an island in the Indian Ocean between Mauritius and Madagascar that’s an overseas territory of France, was listed at 37% in Trump’s reciprocal tariff charts, but wasn’t included on the formal annex. Saint Pierre and Miquelon, a French archipelago near Canada, and Norfolk Island, an Australian territory two hours by plane east of Brisbane, were similarly left off the tariffs annex. France, as a European Union member, faces a 20% reciprocal tariff, while Australia is at the global minimum levy of 10%.
ALSO READ: Big relief for India! Trump spares pharma from harsh tariffs
How were reciprocal tariffs calculated?
Reciprocal tariffs are calculated as the tariff rate necessary to balance bilateral trade deficits between the US and each of their trading partners. This calculation assumes that persistent trade deficits are due to a combination of tariff and non-tariff factors that prevent trade from balancing. Tariffs work through direct reductions of imports.
Reciprocal tariff rates range from 0 percent to 99 percent, with unweighted and import-weighted averages of 20 percent and 41 percent.
To conceptualize reciprocal tariffs, the tariff rates that would drive bilateral trade deficits to zero were computed. While models of international trade generally assume that trade will balance itself over time, the United States has run persistent current account deficits for five decades, indicating that the core premise of most trade models is incorrect.
"While individually computing the trade deficit effects of tens of thousands of tariff, regulatory, tax and other policies in each country is complex, if not impossible, their combined effects can be proxied by computing the tariff level consistent with driving bilateral trade deficits to zero. If trade deficits are persistent because of tariff and non-tariff policies and fundamentals, then the tariff rate consistent with offsetting these policies and fundamentals is reciprocal and fair," a statement of United States Trade Representative.
What is the maths behind the calculation?
Consider an environment in which the U.S. levies a tariff of rate τ_i on country i and ∆τ_i reflects the change in the tariff rate. Let ε<0 represent the elasticity of imports with respect to import prices, let φ>0 represent the passthrough from tariffs to import prices, let m_i>0 represent total imports from country i, and let x_i>0 represent total exports. Then the decrease in imports due to a change in tariffs equals ∆τ_i*ε*φ*m_i<0. Assuming that offsetting exchange rate and general equilibrium effects are small enough to be ignored, the reciprocal tariff that results in a bilateral trade balance of zero satisfies:
Parameter Selection
To calculate reciprocal tariffs, import and export data from the U.S. Census Bureau for 2024. Parameter values for ε and φ were selected. The price elasticity of import demand, ε, was set at 4.
Recent evidence suggests the elasticity is near 2 in the long run (Boehm et al., 2023), but estimates of the elasticity vary. To be conservative, studies that find higher elasticities near 3-4 (e.g., Broda and Weinstein 2006; Simonovska and Waugh 2014; Soderbery 2018) were drawn on. The elasticity of import prices with respect to tariffs, φ, is 0.25. The recent experience with U.S. tariffs on China has demonstrated that tariff passthrough to retail prices was low (Cavallo et al, 2021).
Findings
The reciprocal tariffs were left-censored at zero. Higher minimum rates might be necessary to limit heterogeneity in rates and reduce transshipment. Tariff rates range from 0 to 99 percent. The unweighted average across deficit countries is 50 percent, and the unweighted average across the entire globe is 20 percent. Weighted by imports, the average across deficit countries is 45 percent, and the average across the entire globe is 41 percent. Standard deviations range from 20.5 to 31.8 percentage points
Trump's tariffs on Indian goods
A flat 26% tariff was imposed on all goods being exported by India to the United States, amidst reciprocal tariffs in the range of 10%-49% unveiled by Trump for other countries.
The United States imposes a 2.5% tariff on passenger vehicle imports, while India imposes 70%, the White House said in a statement. Apples are allowed to enter U.S. duty free, but India imposes 50% duty on U.S. apples coming in to India, while rice attracts 2.7% in U.S., in India it is at 80%.
On networking switches and routers, the United States imposes a 0% tariff, but India levies higher rates 10-20%, the statement added.
The U.S. has a trade deficit of $46 billion with India.
Most vulnerable sectors
Nearly $14 billion worth of electronics products and over $9 billion worth of gems and jewellery are among the top sectors to be hit by the U.S. tariffs. While the 26% tariff will not apply to auto parts and aluminium products, those will still attract the 25% tariff that Trump had announced earlier.
The White House said pharmaceutical products, which comprise nearly $9 billion worth of exports from India as per government data, and energy products are exempt under the latest round of tariffs.
Washington's previous sector-wide average tariffs on India for automobiles, gems and jewellery, chemicals and pharmaceuticals and electronic products stood at 1.05%, 2.12%, 1.06%, and 0.41%, respectively, as per Global Trade Research Initiative.
What are other nations facing?
U.S. has levied a 34% reciprocal tax on China, Japan's exports to U.S. will attract 24%, Thailand 36%, Bangladesh 37%, Malaysia 24%, Taiwan at 32%, South Korea at 25% and Vietnam will attract 46% - one of the highest.
What lies ahead for India?
During Prime Minister Narendra Modi's U.S. visit in February, the two nations agreed to start talks towards clinching an early trade deal and resolving their standoff on tariffs.
India is open to cutting tariffs substantially for over $23 billion worth of U.S. goods being sold to India, as per a Reuters report.
With Trump charging a higher tariff on China, sectors where India can gain market share in shipments to U.S. include textiles, apparel and footwear, according to an internal Indian government report reviewed by Reuters.
India sees an opportunity in raising exports of iron and steel products too, where it has manufacturing competence, "especially if tariffs on China are higher," according to the report.
(With agency inputs)
In each case, they were higher by exactly one percentage point. White House officials are yet to comment on it.
In the annex document, India’s rate was listed at 27%, rather than the 26% shown previously. South Korea was at 26%, instead of 25%. Others with differing rates included Botswana, Cameroon, Malawi, Nicaragua, Norway, Pakistan, the Philippines, Serbia, South Africa, Thailand, Vanuatu, and the Falkland Islands.
ALSO READ: Trump’s tariff bombshell hits India, but some desi sectors dodge the shrapnel
This is important because, under the executive order implementing Trump’s reciprocal tariff policy, all US trading partners start at a global 10% tariff from April 5. Four days later, those listed in the annex — and only those in the annex — would have their rates elevated to those set out in that document, said Bloomberg.
Moreover, some overseas territories and possessions of larger countries — originally listed in the White House’s charts with tariff lines different from their parent nations — don’t appear at all in the annex.
ALSO READ: Trump's 26% tariffs put pressure on India. Is New Delhi ready for the impact?
Reunion, an island in the Indian Ocean between Mauritius and Madagascar that’s an overseas territory of France, was listed at 37% in Trump’s reciprocal tariff charts, but wasn’t included on the formal annex. Saint Pierre and Miquelon, a French archipelago near Canada, and Norfolk Island, an Australian territory two hours by plane east of Brisbane, were similarly left off the tariffs annex. France, as a European Union member, faces a 20% reciprocal tariff, while Australia is at the global minimum levy of 10%.
ALSO READ: Big relief for India! Trump spares pharma from harsh tariffs
How were reciprocal tariffs calculated?
Reciprocal tariffs are calculated as the tariff rate necessary to balance bilateral trade deficits between the US and each of their trading partners. This calculation assumes that persistent trade deficits are due to a combination of tariff and non-tariff factors that prevent trade from balancing. Tariffs work through direct reductions of imports.
Reciprocal tariff rates range from 0 percent to 99 percent, with unweighted and import-weighted averages of 20 percent and 41 percent.
To conceptualize reciprocal tariffs, the tariff rates that would drive bilateral trade deficits to zero were computed. While models of international trade generally assume that trade will balance itself over time, the United States has run persistent current account deficits for five decades, indicating that the core premise of most trade models is incorrect.
"While individually computing the trade deficit effects of tens of thousands of tariff, regulatory, tax and other policies in each country is complex, if not impossible, their combined effects can be proxied by computing the tariff level consistent with driving bilateral trade deficits to zero. If trade deficits are persistent because of tariff and non-tariff policies and fundamentals, then the tariff rate consistent with offsetting these policies and fundamentals is reciprocal and fair," a statement of United States Trade Representative.
What is the maths behind the calculation?
Consider an environment in which the U.S. levies a tariff of rate τ_i on country i and ∆τ_i reflects the change in the tariff rate. Let ε<0 represent the elasticity of imports with respect to import prices, let φ>0 represent the passthrough from tariffs to import prices, let m_i>0 represent total imports from country i, and let x_i>0 represent total exports. Then the decrease in imports due to a change in tariffs equals ∆τ_i*ε*φ*m_i<0. Assuming that offsetting exchange rate and general equilibrium effects are small enough to be ignored, the reciprocal tariff that results in a bilateral trade balance of zero satisfies:
Parameter Selection
To calculate reciprocal tariffs, import and export data from the U.S. Census Bureau for 2024. Parameter values for ε and φ were selected. The price elasticity of import demand, ε, was set at 4.
Recent evidence suggests the elasticity is near 2 in the long run (Boehm et al., 2023), but estimates of the elasticity vary. To be conservative, studies that find higher elasticities near 3-4 (e.g., Broda and Weinstein 2006; Simonovska and Waugh 2014; Soderbery 2018) were drawn on. The elasticity of import prices with respect to tariffs, φ, is 0.25. The recent experience with U.S. tariffs on China has demonstrated that tariff passthrough to retail prices was low (Cavallo et al, 2021).
Findings
The reciprocal tariffs were left-censored at zero. Higher minimum rates might be necessary to limit heterogeneity in rates and reduce transshipment. Tariff rates range from 0 to 99 percent. The unweighted average across deficit countries is 50 percent, and the unweighted average across the entire globe is 20 percent. Weighted by imports, the average across deficit countries is 45 percent, and the average across the entire globe is 41 percent. Standard deviations range from 20.5 to 31.8 percentage points
Trump's tariffs on Indian goods
A flat 26% tariff was imposed on all goods being exported by India to the United States, amidst reciprocal tariffs in the range of 10%-49% unveiled by Trump for other countries.
The United States imposes a 2.5% tariff on passenger vehicle imports, while India imposes 70%, the White House said in a statement. Apples are allowed to enter U.S. duty free, but India imposes 50% duty on U.S. apples coming in to India, while rice attracts 2.7% in U.S., in India it is at 80%.
On networking switches and routers, the United States imposes a 0% tariff, but India levies higher rates 10-20%, the statement added.
The U.S. has a trade deficit of $46 billion with India.
Most vulnerable sectors
Nearly $14 billion worth of electronics products and over $9 billion worth of gems and jewellery are among the top sectors to be hit by the U.S. tariffs. While the 26% tariff will not apply to auto parts and aluminium products, those will still attract the 25% tariff that Trump had announced earlier.
The White House said pharmaceutical products, which comprise nearly $9 billion worth of exports from India as per government data, and energy products are exempt under the latest round of tariffs.
Washington's previous sector-wide average tariffs on India for automobiles, gems and jewellery, chemicals and pharmaceuticals and electronic products stood at 1.05%, 2.12%, 1.06%, and 0.41%, respectively, as per Global Trade Research Initiative.
What are other nations facing?
U.S. has levied a 34% reciprocal tax on China, Japan's exports to U.S. will attract 24%, Thailand 36%, Bangladesh 37%, Malaysia 24%, Taiwan at 32%, South Korea at 25% and Vietnam will attract 46% - one of the highest.
What lies ahead for India?
During Prime Minister Narendra Modi's U.S. visit in February, the two nations agreed to start talks towards clinching an early trade deal and resolving their standoff on tariffs.
India is open to cutting tariffs substantially for over $23 billion worth of U.S. goods being sold to India, as per a Reuters report.
With Trump charging a higher tariff on China, sectors where India can gain market share in shipments to U.S. include textiles, apparel and footwear, according to an internal Indian government report reviewed by Reuters.
India sees an opportunity in raising exports of iron and steel products too, where it has manufacturing competence, "especially if tariffs on China are higher," according to the report.
(With agency inputs)
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