The US duties explained: the « restriction indices », Trump calculations, imaginary rates and real effects

Wednesday 2 April, one day announced as « Liberation Day », the President of the United States Donald Trump revealed an extensive plan for increasing duties on the goods imported in the USA.

This plan will cause an inevitable contraction in international tradeand the reactions of the affected states will define the exact contours of a profound change of the global exchange system. The liberalization process supported by multilateral rules and institutions, which began after the post -war period, has definitively interrupted.

The content of the Trump plan

After months of often contradictory advances, it was not clear if the United States would have introduced duties to a single « global » rate (for example, 20% on the goods of any origin) or « personalized » duties for each country.

The announced plan follows the second method: In addition to a minimum rate of 10%, applicable to the goods of all countries, dozens of individual rates are introducedchosen following what is called a « principle of reciprocity ».

According to the US, the imbalance of the commercial balance (the United States buy more goods from the rest of the world than they export) they owe themselves to their generosity: The commercial partners took advantage of the opening of the US market, without however opening their markets similarly.

For each of them, The Trump administration has identified the causes of this alleged imbalance, converting them into an imaginary rate which would reflect the restrictions imposed on commercial flows from the USA.

These « Restriction indices » they would motivate yesterday’s reaction. For example, The European Union is accused of restricting US imports by 39%and is therefore the recipient of A new « discounted » rate of 20%.

The average rate of the duties imposed by the EU is actually around 2.7%to which, however, are added, in this calculation, the restrictions on some products (for example, on the foods considered harmful to health), the imposition of VAT and the complaints of the IT giants regarding the tax on digital services and the penalties imposed by the European Commission.

It is an eccentric method of measuring the supposed closure of a market for US interestswhich combines several indicators: the duties imposed (the index of the Vietnam It is 90%, they will receive a duty of 46%), the imbalance of the commercial balance, the regulatory restrictions, the ascertained practices of manipulation of the currency (the ChinaFor this reason, it will receive a rate of 34%, against the restriction index of 67%), and different geopolitical recriminations.

Nobody is saved.

Israeltwo days ago, he had completely removed the duties on the US goods, hoping to appear an exemption, but will receive a 17%duty. India He hadtened yesterday to report that he had reached a general agreement to conclude a free trade treaty with the USA, but his goods will receive a rate of 26%. Not that the existing free trade agreements – which eliminate the duties on trade between the member countries – have provided a lot of protection: Japan and Koreafor example, will receive duties of 24% and 25%, despite their agreements with the United States.

After a few difficult months, they breathe Canada and Mexicoexempt from the new wave of duties, but still struggling with those announced in the first weeks of the new US administration, and then largely suspended, but only temporarily.

The economic effects of the new duties

The duties make it more expensive to import foreign goods into the country that imposes them.

The increase in costs, If distributors or manufacturers cannot absorb it by reducing profits, it inevitably involves the increase in the price to the consumer.

It is determined like this The thinning of commercial flows (it is no longer convenient to import some goods) and the increase in the price of local products (of which the request is growing, following the decrease in the offer of foreign goods).

These days, Trump also announced a specific (and additional) dice of 25% on all machines and car components: In an industry where the profit margin is certainly lower, this duty will lead to the increase in the prices of the machines sold in the United States, and the reduction of exports to that market.

The effect of the duties will suffer in particular will be US consumersdue to the inflation that will follow, and the producers who buy materials and components from abroad, which will now be more expensive.

Abroad, the exporters of goods to the US will be affected by the dutieswhich may have to abandon that market.

Because Trump has imposed the duties

The strategic sense of this plan is difficult to describe fullyand largely exorbitant from economic-financial issues.

A way of rationalizing this move is to recognize the intention of the United States of attract production to its territoryafter decades in which the most competitive costs extended supply chains all over the world. As Trump often recalls, a way to avoid paying duties is to move production to the United States territory.

This type of industrial policy, very accentuated in sectors of strategic interest (microchips, solar panels, batteries, electric cars), is however Difficult to understand on other low -value sectors affected by the dutiesof which the American economy – which has very high employment rates – does not seem to need. Furthermore, The opening of production plants is a process that takes time: In these days Stellantis has declared that it will reopen a plant in the United States to caution from the new duties, but the production will start in two years.

The era of post multilateralism

This increase in duties clearly illustrates the abandonment of two pillars of the world trade system of the last 70 years.

The first is an egalitarian principle: the duties collected by the important country cannot vary depending on the origin of the goods.

The second is that rates cannot exceed a agreed and binding level.

These principles are sanctioned in the first two articles of the general agreement on customs rates and trade, concluded in 1947 and merged into the rules of the World Trade Organization.

Now the United States, instead of only one, will apply dozens of different dutiesand their medium level will rise from 2% to a dizzying rate. With this announcement, The United States demonstrate the substantial indifference to the World Trade Organization and its rules.

It opens like this a scenario of global struggle, in which each country has the interest in looking for an agreement with the United Statesand therefore the temptation to abandon, in turn, the egalitarian principle.

The treatment of Japan and Korea and, in recent months, Canada and Mexico reveals that A pact with the US may not be enough to obtain durable guarantees. Those who want to take the path of the negotiation, in these days, will profess calm and limit the retaliation. Other countries, however, have already announced their intention to hit the United States with increased duties, prefiguring an escalation that – in addition to demonstrating with greater clarity the ineffectiveness of international rules – can have harmful effects equivalent to those described above, but symmetrical.

*Filippo Fontanelli is full professor of international law at the University of Edinburgh and Luiss teacher