Trump readies matching tariffs on trade partners, possibly setting up a major economic showdown

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U.S. President Donald Trump is taking additional action to upset the world trade system, with plans to sign an order this week that would require that U.S. tariffs on imports match the tax rates charged by other countries.

“It’s time to be reciprocal,” Mr. Trump told reporters earlier this week. “You’ll be hearing that word a lot. Reciprocal. If they charge us, we charge them.”

The president had suggested that the order would come on Tuesday or Wednesday. But when Tuesday passed without the tariffs being officially announced, Mr. Trump was not specific on his timing, telling reporters Wednesday afternoon: “I may do it later on, or I may do it tomorrow morning.” White House press secretary Karoline Leavitt said she believes that the tariffs would come before Thursday’s visit by Indian Prime Minister Narendra Modi.

As Mr. Trump has unleashed a series of tariffs after being in power for less than a month, he has fully taken ownership of the path of the U.S. economy. It’s a bet that his economic ideas can eventually deliver meaningful results for voters, even if by Mr. Trump’s own admission the import taxes could involve some financial pain in the form of inflation and economic disruptions. For all of Mr. Trump’s talk, the impact will likely depend on the details of the tariffs and how other nations respond.

A reciprocal tariffs order could amount to a substantial tax hike to be shouldered largely by U.S. consumers and businesses as the Census Bureau reported that the country had total imports of $4.1 trillion last year. The tariffs could set off retaliatory measures by trading partners that could roil growth around the globe and reset where the United States stands with allies and rivals alike.

By signing the order, Mr. Trump would fulfill his long-standing pledge to raise taxes on most imported goods, a clear break with his recent White House predecessors who saw tariffs as either targeted tools to use strategically or barriers worth lowering. Mr. Trump has broken with that precedent by saying he wants to return the United States to the 1890s when taxes on imports were the government’s dominant source of revenues.

But should job gains never materialize and should inflation stay high, it’s an easy line of attack for Democratic lawmakers and candidates that Mr. Trump helped the ultrawealthy at the expense of the middle class.

“No matter which way you slice it, costs are going to climb for consumers,” Senate Democratic leader Chuck Schumer of New York said earlier this month. “I will work with my colleagues to undo this mess, get costs down and get these billionaires out of the way.”

Mr. Trump put 10-per-cent tariffs on China over its contributions to the production of the illicit drug fentanyl, and China has taken retaliatory measures. He said he is ready if necessary in early March – after a 30-day suspension – to put tariffs on Mexico and Canada over his belief they should do more to fight illegal immigration and drug smuggling.

On Monday, he closed the exemptions to his 2018 tariffs on steel and aluminum, in addition to raising the tariff rates on aluminum. He has also talked about additional taxes on imported autos, computer chips and pharmaceutical drugs.

Many of America’s dominant trading partners are preparing for an economic rupture in reaction to Mr. Trump’s possible actions.

In response to the steel and aluminum tariffs, European Union chief Ursula von der Leyen said Tuesday: “Unjustified tariffs on the EU will not go unanswered – they will trigger firm and proportionate countermeasures.” That means motorcycles, jeans, bourbon and peanut butter from the United States could face new taxes abroad. Mexico and Canada – America’s two largest trading partners – have also prepared countermeasures.

Multiple Trump aides have privately said that Mr. Trump’s long-standing goal with tariffs has been reciprocity. But Mr. Trump has also portrayed tariffs as a diplomatic tool to try to force Canada and Mexico to spend more resources on stopping illegal immigration and drug trafficking into the United States. He also suggested repeatedly that tariffs would be a source of revenues that could offset his planned income tax cuts.

But even before Mr. Trump formally signed the order, analysts at Goldman Sachs on Tuesday concluded it was unlikely to be the final word on tariffs.

“Of course, even if President Trump views reciprocal tariffs as an alternative to more sweeping measures at the moment, we are entering only the fourth week of a four-year presidential term and it seems likely there will be many further tariff announcements,” the investment bank’s analysts wrote.

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Michael Zezas, a strategist at Morgan Stanley, wrote in a Sunday note that the “tariff trajectory” would shape what happens with growth, inflation, interest rates and Federal Reserve policies this year.

“It’s a major shift from the era of globalization, when companies shrank expenses by pursuing lower-cost labour and materials offshore,” Zezas said. “This transition is likely to take many years, creating challenges for some and substantial opportunities for others.”