Trade wars are rarely won, but Donald Trump appears willing to start another one. On February 13th, he announced plans for “reciprocal tariffs,” aiming to mirror the duties that U.S. exports face abroad while countering trade policies he deems unfair. The specifics remain unclear—federal agencies have until April 1st to evaluate “non-reciprocal trade arrangements” and propose solutions. But one thing is certain: if enacted, this policy would upend decades of international trade stability.
Since World War II, the U.S. has championed a multilateral trading system based on fairness and consistency. A key component of this is the most-favored nation (MFN) principle, which requires World Trade Organization (WTO) members to apply the same tariffs to imports from all trade partners, barring special agreements. This prevents countries from selectively punishing trading partners and discourages retaliatory tariffs that spiral into full-blown trade wars.
Trump’s proposed shift would complicate this system. If the U.S. starts adjusting tariffs based on each country’s trade barriers, it could lead to an explosion of individualized duties, making trade far more unpredictable. America already imposes tariffs on more than 13,000 product categories, from auto parts to textiles. Under a fully reciprocal system, every country-specific trade imbalance would require a tariff adjustment, resulting in a staggering number of custom duties. The administrative burden alone would be enormous.
VAT Confusion and Unintended Consequences
One major sticking point in Trump’s logic is value-added tax (VAT), which is widely used outside the U.S. Trump argues that VAT systems unfairly disadvantage American goods because foreign companies can get VAT refunds on exports. But this claim ignores a crucial point: VAT is not a tariff—it applies equally to domestic and imported goods, meaning it doesn’t create an artificial disadvantage for American producers.
If the U.S. were to treat VAT as a trade barrier and impose tariffs accordingly, the effects would be dramatic. European VAT rates average around 20%, with Hungary’s hitting 27%, meaning reciprocal tariffs could push U.S. duties far beyond anything seen in modern trade policy. According to Goldman Sachs, even a limited version of this plan would raise U.S. tariffs by an average of two percentage points, increasing costs for both businesses and consumers.
A Recipe for Retaliation
Trade partners would not take these tariffs lightly. Trump claims that foreign countries would respond by lowering their own trade barriers to maintain access to U.S. markets. But history suggests the opposite—other nations would likely retaliate by imposing their own reciprocal tariffs, leading to a spiraling trade war.
In his first term, Trump weaponized tariffs to strong-arm countries into trade negotiations, often using national security concerns as justification. But tariffs on steel and aluminum, for instance, prompted swift retaliation from Canada, the EU, and China, harming American exporters. If this new round of tariffs follows the same pattern, it could disrupt global supply chains, raise prices for consumers, and damage key U.S. industries—particularly manufacturing and agriculture.
Trump insists that he will remove tariffs if other countries lower theirs first. But given how entrenched many of these trade policies are—especially regarding VAT and regulatory measures—it’s unlikely that foreign governments will make sweeping changes just to accommodate U.S. demands. Instead, companies and consumers will be left to absorb the fallout.