An offhand comment from Trump has sparked serious fears of a trade war

  • President Donald Trump said Monday that his administration is looking into a "reciprocal tax" on imports.
  • The comment sparked concerns among economists, analysts, and industry groups that the US could impose higher tariffs on goods and trigger a trade war.


In what was supposed to be a week focused on infrastructure and the budget, President Donald Trump on Monday caught the eye of economists and policy analysts with an offhand comment that suggested a significant shift in America's trade policy.

Trump said his administration was looking into a "reciprocal tax" on imports, a comment that took many aides by surprise, according to reports. Trump said that the tax could apply to imports from countries that "are so-called allies, but they are not allies on trade."

"We won't charge them anything and we send them our product, same product as they're sending us; and they'll charge us 50 and 75% tax — and that's very unfair," Trump said during a White House meeting. "So we're going to be doing very much a reciprocal tax, and you'll be hearing about that during the week and during the coming months."

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Companies urging Congress to pass border tax
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Companies urging Congress to pass border tax

1. Boeing Co.

(Luke MacGregor/Bloomberg via Getty Images)

2. Caterpillar Inc.

(Luke Sharrett/Bloomberg via Getty Images)

3. General Electric

(REUTERS/Vincent Kessler/File Photo)

4. Dow Chemical Co

(REUTERS/Rebecca Cook)

5. Eli Lilly & Co.

(Michael Nagle/Bloomberg via Getty Images)

6. Raytheon Co.

(REUTERS/Mike Blake)

7. Merck & Co.

(Photo by Kena Betancur/Getty Images)

8. Oracle Corp.

(Michael Short/Bloomberg via Getty Images)

9. Pfizer Inc.

(REUTERS/Andrew Kelly

10. United Technologies Corp.

(REUTERS/Brendan McDermid)

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Trump appears to have been referring to the US's lower tariff rate, on average, compared to other large countries. The World Trade Organization found that the average US tariff rate in 2016 was 3.5% compared to 4.1% for Canada, 5.2% for the European Union, and 9.9% for China.

But the suggestion of imposing higher taxes on imports — in essence a tariff — raised alarm among economists and analysts who have long warned cited concerns about a possible increase in protectionist trade policies under Trump.

Christine McDaniel, a senior fellow at George Mason University's free-market think tank The Mercatus Center, said such a move could directly affect consumers.

"First, it is an import tax. This tax will make our imports more expensive and reduce competition. For consumers, and as others have noted, a 10% tax on imports is akin to a 10% additional tax on your Walmart checkout," McDaniel said Monday. "For businesses – many of whom rely on imported intermediate inputs – it will make their cost of doing business go up. Remember, 40% to 50% of US imports are intermediate goods. "

Industry groups also warned that it could set international trade on the wrong path. Dieter Kempf, the president of German industrial trade group BDI, told Reuters that such a tax would be a step in the wrong direction for the US's relationships with the rest of the world.

"If the USA raises customs barriers, it could lead to a dangerous spiral," Kempf said. "Instead of thinking about penalties and new trade barriers, we should further extend transatlantic trade and investment relations."

Germany was the fifth-largest trading partner with the US in 2017 and was the destination of $53.5 billion worth of exports. 

Trump is entering a key stretch on trade policy

Trump is entering a consequential period that will likely define the administration's trade policy going forward.

The Department of Commerce announced new tariffs on solar energy products and washing machines in January. Reviews of steel and aluminum imports are ongoing with an April 11 deadline. The administration is also in the process of renegotiating the North American Free Trade Agreement.

Chris Krueger, an analyst at Cowen Washington Research Group, said that while this may stoke fears among economists, Trump likely views it as a necessary escalation.

"In theory, Trump's reciprocal tax would re-set the US tariff on all foreign imports to the tariff from the similar U.S. export," Krueger said in a note to clients. "While some might see this as the opening of a global trade war to end all global trade wars, some in the White House (likely including the Commander in Chief) believe that the U.S. is already in a global trade war...and losing bigly."

Kreuger said a broad-based tax on all imports would not be possible without congressional action, but the administration has numerous options to increase tariffs on a slew of products that could be enough to kick off a trade battle.

Trump on Tuesday met with a bipartisan group of lawmakers to talk about trade and an upcoming review of steel and aluminum imports.

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Trump delivering speeches through the years
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Trump delivering speeches through the years
U.S. President Donald Trump gestures as he delivers a speech during the World Economic Forum (WEF) annual meeting in Davos, Switzerland January 26, 2018. REUTERS/Denis Balibouse
U.S. President Donald Trump delivers a speech on tax reform legislation at the White House in Washington, U.S., December 13, 2017. REUTERS/Carlos Barria
U.S. President Donald Trump speaks at the Utah State Capitol, where he announced big cuts to Utah's sprawling wilderness national monuments, in Salt Lake City, Utah, U.S., December 4, 2017. REUTERS/Kevin Lamarque
U.S. President Donald Trump delivers his speech as he and China's President Xi Jinping meet business leaders at the Great Hall of the People in Beijing, China, November 9, 2017. REUTERS/Damir Sagolj
U.S. President Donald Trump delivers a speech at the National Assembly in Seoul, South Korea, Wednesday, Nov. 8, 2017. REUTERS/Lee Jin-man/Pool
U.S. President Donald Trump delivers a speech on tax reform in Indianapolis, Indiana, U.S., September 27, 2017. REUTERS/Jonathan Ernst
President Donald Trump turns his back to the crowd during his speech at a rally for Senator Luther Strange at the Von Braun Centre in Huntsville, Alabama, U.S., September 22, 2017. REUTERS/Marvin Gentry
US. President Donald Trump gives a public speech at Krasinski Square, in Warsaw, Poland July 6, 2017. REUTERS/Kacper Pempel
U.S. President Donald Trump delivers a speech on US-Cuba relations at the Manuel Artime Theater in Miami, Florida, U.S., June 16, 2017. REUTERS/Carlos Barria
U.S. President Donald Trump arrives to deliver a speech on US-Cuba relations at the Manuel Artime Theater in Miami, Florida, U.S., June 16, 2017. REUTERS/Carlos Barria
U.S. President Donald Trump delivers a speech during Arab-Islamic-American Summit in Riyadh, Saudi Arabia May 21, 2017. REUTERS/Jonathan Ernst
U.S. President-elect Donald Trump speaks during a USA Thank You Tour event in Orlando, Florida, U.S., December 16, 2016. REUTERS/Lucas Jackson
U.S. President-elect Donald Trump speaks at the USA Thank You Tour event at the Wisconsin State Fair Exposition Center in West Allis, Wisconsin, U.S., December 13, 2016. REUTERS/Shannon Stapleton
U.S. President-Elect Donald Trump speaks at event at Carrier HVAC plant in Indianapolis, Indiana, U.S., December 1, 2016. REUTERS/Chris Bergin
U.S. President-elect Donald Trump speaks at his election night rally in Manhattan, New York, U.S., November 9, 2016. REUTERS/Carlo Allegri
U.S. President elect Donald Trump speaks at election night rally in Manhattan, New York, U.S., November 9, 2016. REUTERS/Jonathan Ernst
U.S. President elect Donald Trump speaks at election night rally in Manhattan, New York, U.S., November 9, 2016. REUTERS/Jonathan Ernst
U.S. Republican presidential nominee Donald Trump speaks at his final campaign event at the Devos Place in Grand Rapids, Michigan, U.S. November 8, 2016. REUTERS/Rebecca Cook
U.S. Republican presidential nominee Donald Trump gestures as he speaks at a campaign rally in Raleigh, North Carolina November 7, 2016. REUTERS/Chris Keane
Republican presidential nominee Donald Trump speaks at a campaign rally in Raleigh, North Carolina, U.S. November 7, 2016. REUTERS/Chris Keane
Republican presidential nominee Donald Trump speaks during a campaign rally in Sarasota, Florida, U.S. November 7, 2016. REUTERS/Carlo Allegri
Republican presidential nominee Donald Trump attends a campaign rally in Detroit, Michigan, U.S. November 6, 2016. REUTERS/Carlo Allegri
Republican U.S. presidential nominee Donald Trump rallies with supporters in a cargo hangar at Minneapolis-Saint Paul International Airport in Minneapolis, Minnesota, U.S. November 6, 2016. REUTERS/Jonathan Ernst
Republican presidential nominee Donald Trump attends a campaign rally in at the Florida State Fairgrounds in Tampa, Florida, U.S. November 5, 2016. REUTERS/Carlo Allegri
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